Emmis strikes $16M deal to buy back preferred stock

Emmis Communications Corp. said late Tuesday afternoon that it has reached a deal to repurchase more than one million shares of preferred stock from New York-based Alden Global Capital for $16.3 million.

Emmis is paying $15.75 for each share. Last month, it had struck a deal to buy Alden’s preferred stock for $15 a share. But according to Emmis, Alden backed out after an Emmis board member, Joseph Siegelbaum, leaked confidential information to Alden.

Emmis sued Siegelbaum on Nov. 18, three days after Siegelbaum resigned from the board. As a result of the new deal, Emmis is dropping that suit as well as a suit it filed against Alden over its decision last fall to back out of a deal that would have taken the radio-and-publishing company private.

“I’m pleased we were able to come to terms with Alden, bringing an end to this difficult relationship between Emmis and our largest preferred shareholder,” Emmis CEO Jeff Smulyan said in a statement. “This is an important milestone for Emmis.”

Emmis announced Nov. 11 that it planned to repurchase tens of millions of dollars of its preferred stock from various investors at a huge discount. It was the latest bid by the heavily leveraged company to gain financial breathing room.
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The preferred stock has been trading at a deep discount partly because of investor anxiety over the company's heavy debt load. In addition, because of its financial struggles, Emmis has suspended making its quarterly dividend payments on those shares since October 2008. The payments normally would total more than $2.4 million a quarter.

Before the repurchases began, the company had about $140 million in preferred stock outstanding. However,  those shares were trading for just $42 million.
 
To finance the preferred stock purchases, Emmis is borrowing up to $35 million from an affiliate of Chicago financier Sam Zell. The money is due to be paid back by February 2015, at an annual interest rate of 23 percent.

Emmis said Tuesday that when the repurchases from Alden are complete, it will have drawn down $28.5 million of Zell’s $35 million.