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Emmis Communications Corp. Message Board

  • longtimefollower longtimefollower Jan 15, 2011 2:58 AM Flag

    What might a "newly deleveraged" EMMS be worth?

    Assume sell 3 stations for $250 M. (Grabbing a number.)

    Assume $34 M in EBITDA in the coming new fiscal year--beginning March. (Management has publicly stated the assets they are intending to sell generate NO significant cash flow.)

    Pay down $25 M in debt from operating cash flow in new fiscal year.

    Remaining debt is $75 M at year end, plus $158 M in preferred stock, for a total of $233 M.

    Industry current multiple EV/Ebitda is 9-10x (using ROIAK, CMLS, and ETM as comparisons). If that multiple stays the same, implied future EV of EMMS is roughly $300-$340 M. That leaves anywhere from about $70-$110 M in value for the common stock, which, based on 38 million shares out, could theoretically lead to a common stock value of anywhere from roughly $1.80-3.00 per share.

    Potential weaknesses/variables in my analysis:

    1) EMMS is not pure radio play. Publishing assets probably justify lower EV/Ebitda multiple (although they are also "prestige" assets that may be worth more, in a sale, that their EV/Ebitda may is the case, apparently, for the NY and Chicago stations they are trying to sell). Similarly, it is possible that EMMS could be valued as low as say, Saga, or other less leveraged radio assets, which could theoretically value it as low as 6-8x EV/Ebitda, leaving, in theory, little or no value for the common holders.

    2) Assumes payoff of pfd. stock at full liq. value plus accrued dividends. But a strenghtened EMMS may be able to do a tender offer, and buy in a bunch of pfd. at a significantly lower price. (Smulyan is not stupid.)

    3) There could be more significant improvement in the operating results of EMMS (especially the publishing division) than anyone is expecting in 2011, which could significantly increase the value accruing to the common stock, on an EV/Ebitda basis.

    4) No one knows what EMMS will sell, and what they will get for it. Obviously, if they sell assets for $300 M, instead of $250 M (as is certainly possible), and those assets generate little or no cash flow, that would be an additional $50 M in EV that theoretically accrues directly to the common stock.

    Bottom line: Smulyan wasn't trying to buy this thing out at $2.40 because he thought he would "break even" at that price. The required asset sales, in my opinion, will "reveal" the value of the remaining assets in a dramatic way, as the debt reduction will be dramatic, and suddenly "remake" this company's image, on the Street.

    My own guess: Within 12-18 months, the stock will be trading between $3-5, and if it doesn't go up "quick enough," there would be a good chance that Smulyan would take advantage of a newly deleveraged EMMS to make another takeout bid, after the assets are sold, and the debt reduction occurs. That bid would, almost certainly, in my opinion, need to be considerably higher than the $2.40 he previously bid, because of industry improvement, and because a deleveraged EMMS is, by definition, a more valuable EMMS. In fact, as soon as material asset sales are announced (assuming they are), the stock, imo, still has significant upside "pop" potential.

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