Emmis Communications looking to cut leverage, may split radio, TV

By Peter Heap

New York, Dec. 4 - Emmis Communications Corp. said Tuesday it is aiming to cut its leverage and is examining a range of possibilities, one of which would be to separate its radio and television operations.

"Clearly there's more leverage than we would like to have," Emmis chairman Jeffrey Smulyan told the UBS Warburg Media Week Conference in New York City.

"When you look at the stock price of this company, there's no questions we are being penalized for the high leverage."

However Smulyan noted that the company has been through periods of high leverage previously and observed: "We were a product of the late 80s with a lot of leverage."

Emmis would like to see its leverage ratio in the fives, added to chief financial officer Walter Berger.

In response, Smulyan said the company is taking a range of actions. On the operational side, it is doing things like offering a salary swap to employees under which they take a pay cut with the difference made up in stock. That is expected to produce $11 to $14 million in cash flow savings, according to Berger, who added that there are also benefits from having workers' interests aligned with investors'.

"There will be a number of other things" on the operational side, Smulyan added.

However Emmis is also looking at broader options, including strategic opportunities, equity partners and asset sales, Smulyan said.

One possibility ruled out for now is a stock offering.

"Selling equity at $16 is not something we are going to do," Berger said. Emmis stock closed at $16.29 Tuesday.

Smulyan declined to give details of Emmis' plans despite questioning from the conference audience.

However, when asked about introducing a tracking stock or some other method to allow investors to play the company's radio and television operations separately, Smulyan said: "That would be ideal."

He noted that many investors have different opinions on the two segments and would like to be able to invest in only one at a time.

"We are working on one thing we think people will be pretty intrigued by," Smulyan added. "But you are not done until you are done."

He pointed out that in 2000 Emmis was working on a tracking stock but had to abandon the plan after a sharp downturn in the radio market. Efforts to carry out a "strategic transaction" this year were brought to a halt by the Sept. 11 terrorist attacks.

While he said, "clearly we are looking at a lot of things" as far as strategic transactions are concerned, Smulyan did rule out any involvement in newspapers.

Earlier in the presentation, Smulyan told the audience he believes there is still opportunity for growth in radio.

And Berger said the key to radio's success is growing its market share at the expense of other media, specifically newspapers from which it has taken four percentage points in the last five years while television has been stagnant. Radio, he explained, has the advantages of portability and being able to tie into people's lifestyles.

In addition, newspaper circulation is declining "precipitously" and readers' ages are increasing, with the average age over 50 even though advertisers typically want to reach much younger audiences, Berger said.

Emmis' goal is to have 75 to 100 radio stations in the top 30 markets, enough to give the company a $1 billion a year radio business, Smulyan said. While it is in no hurry to add new stations, Emmis has a history of growing by buying underperforming assets and "making them better."

The company empowers staff to make decisions and gives its stations a local identity, supported by strong marketing and research.

Applying the same techniques to television, he added, means "we think there's a significant opportunity to grow."

End

© 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.