Emmis Communications Corp. has sued one of its former board members, alleging he inappropriately leaked confidential company information.
The lawsuit, filed Friday in Marion Superior Court, accuses Joseph R. Siegelbaum, a New York attorney, of leaking information that prompted a stock deal to fall through.
The suit alleges Alden Capital Group withdrew its offer to sell its preferred stock to Emmis after Alden was made aware of a special Emmis board meeting by Siegelbaum. The deal also would have settled litigation between Alden and Emmis over failed efforts to take the company private, the new lawsuit says.
Siegelbaum could not be reached for comment Friday night. (Star report)
Indianapolis-based Emmis Communications Corp. sued a former board member Nov. 18, claiming he leaked information that resulted in the scuttling of a stock buy-back that would have taken Emmis private.
The suit alleges that Joseph R. Siegelbaum told Alden Capital Group about a confidential Emmis board meeting called for Oct. 25 to approve an offer by Alden to sell its stock to the media company for $15 a share—a deal Alden said was good for seven days.
The deal included settlement of litigation between Emmis and Alden.
Hours after the board was alerted about the conference call the prior day, Alden contacted Emmis counsel to cancel the offer, Emmis claims.
Siegelbaum said during the Oct. 25 conference call that he informed Alden of the meeting, and then left the call, the suit says. Siegelbaum, who joined the board July 13, resigned Nov. 15.
During the call, Emmis directors approved financing as much as $35 million to buy stock from Alden or other shareholders.
Siegelbaum could not be reached immediately for comment.
It was disclosed earlier this week that Siegelbaum, an attorney with the law firm of
Goodwin Procter LLP, had resigned from the Emmis board prior to the expiration of his
one-year term. He was one of two board members nominated by the holders of Emmis
preferred stock. At that time, Emmis released the usual statement: “The resignation was
not due to any disagreement with Emmis on any matter relating to Emmis¶ operations,
policies or practices.” Now, however, Emmis has filed suit against Siegelbaum in Marion
County, Indiana Court. It alleges breach of fiduciary duty, and asks for compensatory
and punitive damages, and "all other just and proper relief."
The backdrop of this action is that Emmis CEO Jeff Smulyan was once partnered with Alden Global Capital in
an attempt to take Emmis private. That cratered, and Smulyan's JS Acquisition and Alden brought legal actions
against each other. Emmis recently reached a deal with a fund associated with Sam Zell worth $35 million, the
purpose of which was to buy back some of its 6.25% preferred stock at attractive rates. In the Siegelbaum suit
filed on Friday (11/18), Emmis says Alden contacted it about an offer to sell all its preferred stock (about one
million shares) at $15 per share. That offer included understandings that Alden and Emmis would drop their legal
claims against each other. Emmis needed board approval to consider the $15-per share offer, and set up a
special meeting to consider it. Now Emmis alleges that Siegelbaum inappropriately disclosed the upcoming board
meeting to Alden, and it says Alden then withdrew its offer.
Why would Alden be upset about a board meeting meant to approve their offer? It would seem that it was a necessary part of the process. The details currently available do not make sense to me. Could someone please explain?
I totally agree. The details do not make sense. I presume Emmis feels, perhaps, that a sale of the Alden shares to Emmis would have made it that much harder for the remaining preferred holders to get a one third interest, to control any potential restructuring of the remaining preferred, and that the direct that separated from the board was consciously trying to sabotage Emmis's efforts to buy back the preferred stock, in the interest of helping the preferred holders he represented, instead of the entire shareholder base.
The intrigue grows. It's unfortunate to have a deal to buy 1 million preferred shares fall through. That would have been, and would still be, huge!