You may remember that it was insistence on a better deal by a group of preferred shareholders that held up the 2010 effort by CEO Jeff Smulyan to take Emmis Communications private – and ultimately led to financial backer Alden Global Capital walking away. Now a new group of preferred shareholders are resisting the effort by Emmis to buy back preferred shares.
Zazove Associates, with 475,753 preferred shares, and Corre Partners Management, with 159,090 preferred shares, have made filings with the SEC serving notice that they have signed a lock-up agreement not to tender their preferred shares under the current tender offer by Emmis. According to the filings, Kevan A. Fight, with 57,750 preferred shares, and DJD Group, with 76,810 preferred shares, are also parties to the lock-up agreement, although they have not yet made any SEC filings. That’s a total of 766,803 preferred shares.
Emmis is attempting to purchase between 385,604 and 428,571 Preferred Shares representing 14.8% to 16.4% of the issued and outstanding Preferred Shares as of November 30, 2011. “The 1,484,679 Preferred Shares whose vote we are currently able to direct pursuant to agreements we entered into previously with holders of those shares will constitute 66.673% of the issued and outstanding Preferred Shares following the completion of the Offer,” Emmis stated in its tender dopcuments, which would put it just over an important two-thirds threshold.
The lock-up group worries that if Emmis is able to obtain the ability to vote two-thirds of the outstanding preferred shares by virtue of its previous deals to buy back preferred shares from Alden and others, along with the current tender, that it will be able to change the terms of the preferred shares and even cease to have dividends accrue. If the changes are made, the preferred lock-up group worries, “the market value of the Preferred Shares remaining outstanding will be materially and adversely affected, and Emmis may engage in various actions that are currently prohibited or limited by the various terms and provisions of the Preferred Shares.”
RBR-TVBR observation: We had previously questioned how much interest there would be in the Emmis tender, which has its top end below the recent market price. It appears the next move in this chess game is up to Jeff Smulyan and the Emmis board. If they don’t make a new move, we’ll just wait to see how the tender comes out when it closes on December 30th.