UPDATE: Emmis takeover deal unlikely to hit turbulence

A big Emmis Communications Corp. shareholder believes the $90 million deal CEO Jeff Smulyan unveiled Monday morning to take
the company private is unlikely to get derailed—even though it’s worth far less than a takeover offer Smulyan
failed to get through his board four years ago.

The shareholder, Frank Martin of Martin Capital Management in Elkhart, noted Smulyan has tremendous clout to control Emmis’
fate because he owns a special class of stock that has 10 times the voting power of regular shares. As a result, his voting
power is around 70 percent, even though he owns less than 20 percent of the stock.

Monday morning's announcement also notes that Smulyan already has lined up a financial backer—Alden Global Capital
of New York. And it says terms of the deal require that the Emmis board send the matter directly to shareholders without a
recommendation. If the board does so, Smulyan's votes alone would assure approval.

“This thing is three-quarters wired shut,” said Martin, whose firm owns 6 percent of Emmis.

He said Smulyan, 63, may justify sending the matter directly to shareholders on the grounds that any delay could cause Alden
to walk away. Boards typically hire an outside firm to prepare a fairness opinion before blessing or rejecting a proposal.

According to Monday's announcement, JS Acquisition Inc., the firm Smulyan has established to complete the acquisition,
would purchase all shares of publicly traded Emmis for $2.40 each, or about $90 million.

Smulyan made an offer in May 2006 to acquire all of the shares of Indianapolis-based Emmis for $15.25 per share in a deal
that valued the company at $567 million. He called off the deal a few months later after he couldn’t reach terms with
the board.

Smulyan's offer is about an 84-percent discount to the previous offer. Since that offer, however, the prospects for the
radio industry have dimmed substantially. The company also issued a $4-a-share cash dividend that pushed down its stock price.

Emmis spokeswoman Kate Snedeker said Monday that Securities and Exchange Commission rules prohibit company executives, including
Smulyan, from discussing the plan.

Emmis shares rebounded from a 52-week low of 25 cents apiece in July to close Friday at $2.30 each.

A key party in the deal is Alden Global Capital, which owns 42 percent of the $140 million in preferred stock Emmis has outstanding.
Alden has consented to exchange that stock for bonds due in 2017 paying a hefty 12 percent interest rate.

Emmis wants all preferred shareholders to make the same exchange, and needs approval from holders of two-thirds of those
shares to move forward. With Alden already on board, it needs approval from holders of only another 24 percent of the shares.

The preferred shareholders would receive bonds reflecting only 60 percent of the face value of the preferred stock. But despite
the haircut, many may come out well ahead on their investment. That’s because they likely were able to buy their shares
at a huge discount since Emmis has been struggling and has failed to pay scheduled dividend payments on the stock for six
consecutive quarters.

If the going-private transaction closes, Arden may end up with a substantial stake in the company. In Monday's announcement,
Emmis said Arden has agreed to buy $80 million of new preferred stock that is convertible into common stock. It also would
receive warrants giving it the right to buy common stock in the future at a nominal price.

Mark Foster, chief investment officer of Kirr Marbach & Co. in Columbus, said going private probably makes sense for
Emmis. He said the company’s debt load—-which exceeds $300 million—likely unsettles many prospective public
company investors.

Going private would give Smulyan more leeway to run the company as he wishes, Foster said.

“He’s always been an innovator in the industry,” he said. “But sometimes Wall Street is not all that
keen on innovation. [With Emmis] as a private company, he can probably do what he wants. And that’s not a bad thing."

Founded in 1981, Emmis owns 23 radio stations in the United States and publishes regional magazines in seven cities. It also
operates radio stations in Belgium, Slovakia and Bulgaria, and owns interest in a Hungarian station.

Transactions in which insiders seek to buy the companies they run often spur lawsuits alleging boards breached their fiduciary
to shareholders and failed to solicit higher offers from unaffiliated parties. At least two law firms issued press releases
Monday saying they were investigating the Emmis transaction.