November 30, 2011 9:03 AM EST
Emmis (Nasdaq: EMMS) reports launch of modified "dutch auction" tender offer for up to $6 million of 6.25% Series A Preferred Stock. The offer is set between $12.50 and $15.56 per preferred share
You hold preferred shares, apparently?
It is interesting the way the effect of some of the disclosures may very well be that the preferred holders are "scared" into tendering to Emmis. But I'm sure they would say that the disclosures simply represent the appropriate cautions they need to give to holder...that control of 2/3 of the preferred, by the company, equals the legal right to vote those shares for the greater good of the company as a whole (including the common stockholder).
Are you aware of any legal precedents in this area?
Absolutely. But just keep in mind that a good portion of my conviction of value is that I see the moves they are making with the preferred as a defacto "proxy" for another going private bid in fairly near future. If I am wrong, and Smulyan is not interested in taking it private, or the financing for a going private bid is not there, the stock could, in theory, be "dead in the water," between, say, 80 cents and $1.25, for a few, or perhaps several, months. And I guess people are worried about the listing still. (That, along with probably tax loss selling, is keeping it under pressure.) Overall, I continue to believe this security is TERRIBLY MISUNDERSTOOD by the market. And I put a significantly higher chance that the CEO comes in with another bid, than the Street apparently does.
The other risk is that they cannot readily get to control 66.67% of the preferred, and they get "hamstrung" my another 33.34%+ lock up group (although that seems rather doubtful).
The problem is that, the way the preferred is set up, is that it is assumed that if 2/3 of the holders are comfortable with something, it must be okay for all of the holders. I don't think the indenture for the preferred really envisioned that the price would collapse in the market, a bunch of new investors would end up buying a ton of it for a fraction of face, and end up selling it back to the company.
The board has a fiduciary duty to the entire shareholder base. The notion that one can balance out "common" vs. "preferred," is very difficult, when, in my opinion, the interest of the common holders CONFLICTS with that of the preferred. How that is resolved is beyond me. I guess it just comes down to treating the pfd. shareholders "fairly." But is a preferred holder who wants to keep his shares, and eventually claim face plus accrued dividends being realistic...when the indenture clearly states that if 2/3 of preferred holders support it, Emmis can stick the preferred holders priority status behind ANY other new class of stock (among other actions they could take if they control 2/3).
In one sense, your beef should be with the 60% or so of pfd. holders, that were willing to sell back to the company at about 25% of their theoretical claim. Why was no one else available, in the open market, to buy out their claim from them, and defend that claim? The fact that no one was, might very well be "ominous" for the remaining preferred holders.
It seems like the pfd. stock is a "dying" security...which is why, like you, I sold out my position, in the open market, a day or two ago.
Why so. Pricing too low?
They can't very well offer more than they paid the institutions that have sold them shares to date now, can they?
I wonder if their agreements, with the institutions, to buy back their shares, precluded them from paying more than a nominal premium, to what they paid the institutions, for any additional shares they buy.