Emmis Communications Corp. (EMMS) told a U.S. judge it will delay a scheduled Aug. 14 shareholder vote that could wipe out $34 million in unpaid preferred stockholder dividends until after she rules on a bid to block the balloting.
Corre Opportunities Fund LP and other preferred stockholders asked U.S. District Judge Sarah Evans Barker in Indianapolis for an order blocking the vote, arguing that Emmis board members and Chairman Jeffrey Smulyan failed to comply with state and federal disclosure laws.
Barker today ended a two-day hearing with a suggestion that both parties think of a way to compensate the stockholders for their losses while allowing the radio station owner and operator to move ahead with a plan to reduce debt and stabilize its financial condition. She said she’d rule by Aug. 31.
“The board will convene Aug. 14 and adjourn,” corporation Secretary J. Scott Enright told Barker, taking action only to set a meeting for after the U.S. Labor Day holiday on Sept. 3.
With a market capitalization of about $85 million, Emmis has more than 41 million shares of stock outstanding, 2.8 million of which are preferred shares whose holders are currently entitled to automatic dividends.
Those dividends, worth 6.25 percent of the preferred shares’ $50 liquidation value, or $3.125, haven’t been paid since October 2008, the investors said in a court filing. Including those unpaid dividends, each preferred share is worth $62.12 according to a June 29 proxy statement and meeting notice.
Other proposals on the Aug. 14 ballot included elimination of future preferred dividends unless declared and with that, the abolition of preferred stockholders’ ability to elect two members to the Indianapolis-based company’s board as long as there are arrears.
All of this, Corre alleged in court papers, is a prelude to Smulyan’s plan to take the ninth-biggest U.S. radio station operator private.
“Our contention all along has just been leave us alone,” John Barrett, managing partner of New York-based Corre Partners Management LLC, which controls the plaintiff fund, said in a phone interview last week.
Barrett testified yesterday as did Smulyan, who denied any intent to privatize the company following failed attempts to do so in 2006 and 2010.
“I’m worn out from two years ago,” the chairman and chief executive officer said. “I just don’t want to do it. I can’t foresee a situation in which that would change.”
Smulyan owns almost 60 percent of Emmis’s common stock and controls votes for almost 67 percent of the preferred shares, meaning the votes will probably go in his favor, according to the proxy statement.
“Let’s say all requirements were satisfied,” Barker said of the dispute over whether the company properly disclosed its intent. She said there is no doubt “that Mr. Barrett and his group were victimized” when they failed to sell their shares to Emmis and Smulyan.
“They were left holding an empty bag,” she said.
While Emmis attorney Richard Kempf today told the judge the company would be harmed by being unable to improve its financial condition, investor lawyer Wayne Turner asked her to prevent the company from taking any action until after a trial on his clients’ claims.
The case is Corre Opportunity Fund LP v. Emmis Communications Corp., 12-cv-00491, U.S. District Court, Southern District of Indiana (Indianapolis).
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