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Emmis CEO Offers $567M for Company

Posted on: Tuesday, 9 May 2006, 12:03 CDT

By Erika D. Smith, The Indianapolis Star

May 9--Jeff Smulyan is putting his money where his mouth is.

The chairman and chief executive officer of Emmis Communications Corp. made a $567 million bid Monday to buy the Indianapolis-based media conglomerate. He then would take it private.

That would give Smulyan the freedom to do what he has talked about for months -- make Emmis a pure radio company. It also would give him free rein to invest in whatever he wants -- like a baseball team -- without reproach from Wall Street.

Not that Wall Street has been kind to any radio operator lately. The industry is profitable but fighting competing technologies and falling ad revenue.

"I think that he's clearly been frustrated with the stock price for quite some time," said Mark Foster, chief investment officer for Kirr Marbach & Co., a Columbus investment house that until recently owned a stake in Emmis. "Wall Street wants this. Wall Street wants that. Wall Street wants him to sell TV. He sells TV, and the stock is still on its back."

On Monday, though, shares climbed 21 percent, closing at $16.25, up $2.82. That's the biggest one-day gain since March 2000, when the stock was trading in the $45 range.

Smulyan's bid is a non-binding offer of $15.25 in cash for each common share. That's a 13.6 percent premium over Friday's close of $13.43.

The fact that Emmis shares soared well above the offered price on Monday raised speculation among analysts that he would have to make a higher bid.

In a statement released Monday, Emmis said it has formed a committee of independent directors to evaluate Smulyan's bid, selecting its own financial and legal advisers. Smulyan and others on the board of directors who are members of management will not take part.

For the buyout to become reality, the committee's recommendation and the board's OK are required. And that's not just a formality, although Smulyan is Emmis' controlling shareholder.

Under a "going private" clause in Emmis' charter, the CEO controls 16.9 percent of the vote on his bid. But on all other transactions, including a vote on a rival bid, he wields 67 percent of it.

Smulyan has told the board he won't agree to any competing bid.

If the committee recommends a higher bid, Foster predicted Smulyan would make it.

But it was unclear Monday where the money would come from -- or how Emmis might change under private ownership.

Smulyan's bid came through a private company, ECC Acquisition, which he owns. But Emmis also said Blackstone Group LP, Banc of America Securities LLC and Deutsche Bank Securities were Smulyan's advisers.

"I wouldn't look much further than right there," speculated Jack Messmer, executive editor of Radio & Television Business Report.

"Obviously," he added, "he's not writing a check out of his personal bank account."

But that could be exactly what Smulyan is doing, said Matt Will, associate dean at the University of Indianapolis School of Business.

"He could probably do it on his own between his personal net worth and his personal ability to get financing," he said, noting that Smulyan took Emmis public in 1994 and reaped the financial benefits, since he owned most of the company. "He's really just reversing what he did 12 years ago."

Even if Smulyan did have to borrow money, the company's balance sheet is strong enough to repay those loans without much difficulty, Will said. The company, once burdened with high debt, has been selling off TV stations and using the proceeds to reduce that debt for months.

If the buyout goes through, Smulyan probably will restructure the company financially, securing long-term financing, Will said. He will continue his strategy of focusing on radio, just more aggressively.

"It's not one of those cases where they're going to go private, leverage the thing to the hilt and then tighten the belt to finance the deal," he said.

Emmis won't go broke if it goes private, Will said.

That could be why the stock price jumped Monday. It also could be why analysts and insiders were happy with the news.

"My feeling is, at this time and place, it's probably an excellent thought and strategy," said Dave Van Dyke, president of the radio market research firm Bridge Ratings. "It will allow the company to have more privacy."

The radio industry has taken a beating in recent years. Sluggish ad revenue and new technologies, such as iPods, have dealt blow after blow to an industry thriving only a decade ago. It's an environment that radio operators can't always control, especially on a quarterly basis, Van Dyke said.

So analysts and industry insiders weren't surprised by Smulyan's decision to get Emmis out of the publicly traded eye.

Speculation heightened last week when the CEO's bid to buy the Washington Nationals baseball team fell through. In addition to his own money -- money he now is using to buy Emmis -- Smulyan decided that Emmis would invest $100 million in the deal.

Wall Street hated the idea, and sent the stock spiraling last year. On Monday, Emmis said Smulyan's unsuccessful effort to buy the Nationals would cost the company $1.1 million.

"I firmly believe if the stock is public, it will always trade at a Smulyan discount," Foster said.

With Smulyan at the helm, he said it's just one more reason Emmis may fare better private.

Separately Monday, Emmis said it agreed to sell WKCF-TV in Orlando, Fla., to Hearst-Argyle Television for $217.5 million in cash. That leaves Emmis with two TV stations in its portfolio.

Also, Emmis agreed to sell KKFR-FM in Phoenix for $77.5 million. After that deal closes, Emmis will own 23 domestic radio stations. Emmis also publishes several regional magazines.

EMMIS COMMUNICATIONS

-- History: Founder Jeff Smulyan incorporated Emmis Broadcasting in 1979 when he bought Shelbyville radio station WSVL, which later became WENS-FM.

-- Headquarters: 40 Monument Circle, Indianapolis.

-- Employees: 3,002.

-- Executive: Smulyan, chairman, president and CEO.

-- Fiscal 2006 net revenue: $387.4 million.

-- Properties: 25 domestic radio stations; one radio network; three TV stations; six magazines; a book-publishing unit. Emmis also owns radio properties in Belgium, Bulgaria, Hungary and Slovakia.

-- In Indianapolis: Emmis owns WIBC-AM (1070), WNOU-FM (93.1), WLHK-FM (97.1), WYXB-FM (105.7), Network Indiana and Indianapolis Monthly magazine.

-- Ticker: EMMS.

Sources: Emmis, Star archives

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EMMS,

Source: The Indianapolis Star

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