Analysis

Background

On May 25, 2010, Emmis Communications Corporation announced that it signed a merger agreement with JS Acquisition, LLC, a company owned by EMMS’s Chairman and CEO, Jeffrey Smulyan, effectively taking the company private. Common stock holders will be cashed out at $2.40 per share in a deal worth approx. $90.2m. The deal has been in the works since late April, when the company received a letter of intent regarding the going private transaction.

Terms

Holders of Class A common stock will receive $2.40 for each share tendered. Other considerations are due to preferred stock holders.

Shareholder Complaint

As often happens in these transactions, several lawfirms are investing whether the board of directors breached its fiduciary duties to shareholders by accepting the going private offer. These lawsuits allege that the closing price of $2.40 is only 11% above the most recent closing price of $2.38.

However, I do not see this as being a major roadblock to the transaction. The only reason for the small premium was that a letter of intent was signed back in April. The $2.40 offer is 74% above the 30-day average trading price and 118% above the 180-day average trading price, a significant premium.

Board Approval

The board approved the transaction in conjunction with the merger announcement.

Shareholder Approval

In order to approve the transaction, a majority of common shareholders must tender their shares in favor of the merger. Since Jeffrey Smulyan owns 60% of outstanding Common Shares, this part of the approval is already assured.

In addition to the common shareholder approval, 2/3 of Preferred Stock holders must also vote to tender their shares. Alden Global Capital, the asset management company that is providing financing for the transaction, holds 41% of outstanding preferred shares and has voted to approve the merger.

This means only 25% of preferred stock holders must vote to approve the merger in order for the transaction to go through.

Timeline

The tender offer will commence on June 3, 2010 and will last at least 20 business days. Assuming preferred shareholders promptly tender their shares, the going private transaction should commence sometime around July 1, 2010.

Discussion

Unless something falls through with the financing, I don’t see very many risks with this transaction. Jeff Smulyan controls the majority of the company and seems to have the backing of the board and the largest preferred shareholder. I’m anticipating the merger will go through in July.

Shares can be picked up for $2.29 per share, resulting in a quick ~5% return in just over 30 days

Supporting Documents

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Disclosure

Long EMMS