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Emmis Defeats Preferred Stockholders’ Bid to Block Vote

Emmis Communications Corp., the ninth-biggest U.S. radio station operator, fended off a bid to block a shareholder vote that could wipe out $34 million in unpaid dividends owed to preferred stockholders.

U.S. District Judge Sarah Evans Barker in Indianapolis yesterday denied a request by preferred shareholders for an order preventing a vote on that proposal and others that were to be the subject of a since-postponed Aug. 14 special meeting. The shareholders claimed that if the proposed amendments became effective, their preferred stock would become worthless.

“Plaintiffs have failed to meet any of the threshold requirements for injunctive relieve,” Barker said in her 48-page ruling. “We hold that any damage plaintiffs are likely to suffer in the absence of injunctive relief is not irreparable.”

The shareholders could be “adequately compensated for by an award of monetary damages, should they ultimately prevail after a full assessment of the evidence,” Barker said. An injunction barring a vote could harm Emmis’s stock price and its efforts to refinance, Barker said.

Emmis, which had been little changed most of yesterday, rose after the court’s decision, jumping 24 percent to $2.50 in Nasdaq Stock Market composite trading.

Corre Opportunities

The judge heard testimony and oral argument during a two-day hearing that ended Aug. 1. When Emmis lawyers told her they would willingly delay the meeting, Barker told them she would rule on or by yesterday.

Corre Opportunities Fund LP and other preferred stockholders sued Indianapolis-based Emmis, which owns radio stations in cities including New York and Los Angeles, along with Chairman Jeffrey Smulyan and other officers and directors. Corre accused them of failing to comply with state and federal disclosure laws.

“Emmis properly disclosed what was appropriate to disclose in a timely way,” the company said in a May 29 court filing opposing the investors’ request.

With a market capitalization of about $82 million, Emmis has more than 40 million shares of stock outstanding, 2.8 million of which are preferred shares whose holders are currently entitled to automatic dividends, according to a June 29 proxy statement issued in advance of the now-delayed vote.

Liquidation Value

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 that 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 Emmis 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 in July.

Barrett testified at the hearing as did Smulyan, who denied any intent to privatize the company following failed attempts to do so in 2006 and 2010.

‘Worn Out’

“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.

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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