Emmis to cut conversion price on preferreds under settlement

New York, June 2 - Emmis Communications Corp. will lower the conversion price on its convertible preferred stock under the terms of the settlement announced late Wednesday with holders of the securities.

If the company's planned Dutch auction tender offer for its common stock is fully subscribed at the top end of the price range, the conversion price will be lowered to $30.00 from the current $39.0625, Emmis said in an 8-K filing with the Securities and Exchange Commission.

The precise level will be set using a "special anti-dilution formula." In addition, any other tender or exchange offers will also trigger an anti-dilution adjustment based on the amount to be paid in the tender or exchange, Emmis' overall market capitalization and the market value of the class A common stock over a 10-day trading period ending on the date immediately before the first public announcement of the offer.

In addition to the adjustment to the conversion price, Emmis intends to give holders of the convertible preferreds the right to require Emmis to redeem all or part of the securities on the first anniversary of a going private transaction in which Jeffrey H. Smulyan, Emmis' largest shareholder, or his affiliates participate. The redemption price would be the liquidation preference plus accrued dividends.

Emmis also agreed not to reduce the number of shares or change the price range for the Dutch auction tender offer and to pay some of the legal expenses of the convertible preferred holders.

The Indianapolis broadcaster announced the settlement of the preferred holders' lawsuit late Wednesday, saying it had entered into agreements with investors owning more than 66 2/3% of the convertibles.

The lawsuit was over the anti-dilution provisions of the securities.

Agreement allows Emmis to go ahead with its planned Dutch auction tender offer for its common stock.

Under the terms of the settlement, Emmis will hold a special meeting of shareholders to vote on proposed amendments to the terms of the convertibles.

Emmis plans to hold the meeting on June 13.

The changes require approval of holders of 66 2/3% of the convertibles and the holders of its class A and class B common stock, voting as a single class. Since Smulyan, owner of 48.9% of the company's stock, plans to vote in favor, Emmis expects to obtain approval.

In a PRER 14A proxy statement filed with the SEC, Emmis said the anti-dilution provisions of the convertible preferreds had been intended to keep the economic position of the holders substantially the same after events such as dividends, stock splits, tender offers and the like.

But Emmis said it "recently discovered that the anti-dilution provisions of its original second amended and restated articles of incorporation contained a mistake."

The provisions for tender offers "produce a disproportionate adjustment to the effect of any tender offer by Emmis or its subsidiaries on the economic position of holders of the convertible preferred stock," the company said. As a result the conversion price would have been lowered by far more than intended.

Under the proposed new terms, changes of more than 15% of the company's capitalization will trigger the anti-dilution provision.

In that case, the conversion price will be adjusted proportional to the market value of the common stock, divided by the market value less the fair value of the tender offer or other payment.

For the planned Dutch auction, the conversion formula is the preferreds' liquidation preference divided by the sum of the liquidation preference divided by the conversion price plus 0.386 times the price paid for all the shares tendered divided by 400 million.

Oppenheimer Funds, Inc. owns 13.91% of the convertible preferreds, Advent Capital Management owns 13.22%, Froley Revy Investment Co., Inc. owns 11.2%, Deutsche Bank AG London owns 10.85% and Putnam Investment Management, LLC owns 5.39%, according to the SEC filing.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.