A take-private offer for
lifted the sagging radio sector Monday.
Shares of Indianapolis-based Emmis surged 21% after its CEO and large shareholder Jeff Smulyan offered $15.25 per share for the company. The proposal values Emmis at $567 million, a 14% premium to Friday's close.
But investors apparently were looking for even more in a takeout of Emmis, whose shares jumped $2.87 to $16.30.
Other radio stocks surged as well.
( CXR) added 4%, and
each gained 3%.
The Smulyan move comes as the radio industry faces increased challenges from satellite operators, such as
( XMSR). Meanwhile, consumers have been changing their music listening patterns, thanks to the proliferation of such mobile devices as the
The proposed deal puts an enterprise value, reflecting debt and preferred stock in addition to equity, of $1.4 billion on Emmis. Smulyan owns 17% of Emmis, but because of a provision in the company's charter concerning his supervoting stock, he will hold 67% voting power on any competing deal for Emmis.
Bank of America analyst Jonathon Jacoby notes that his firm would not buy the stock at its current price of $16.55 and writes that "if there is no private equity sponsor as a partner, this 'potential' deal could unravel."
Jacoby also says in his note that there is "probably not much room to increase bid price unless CEO Jeff Smulyan has a bidding partner (financial player), as the leverage will be quite high under the current price." Bank of America does work for Emmis, and Jacoby owns shares of XM Satellite.
Private equity firm Blackstone Group is one of the advisers involved with Smulyan's bid, but Jacoby says his group has no indication that Blackstone has joined as an equity sponsor.
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On the radio sector as a whole, the BofA analyst remains cautious. He writes that radio stocks could rally on a feeling that more groups might privatize operations. But he says top-line sluggishness, expense pressures and a migration of ad dollars away from radio will likely continue.
Over the course of the past year, Emmis has shed most of its 16-station TV group. Today it announced that
( HTV) entered into an agreement to buy its Orlando TV property for $217.5 million. Emmis TV stations in Honolulu and in New Orleans are still on the block. Emmis also agreed to sell an FM radio station in Phoenix for $77.5 million to Bonneville Holdings.