EMMS - Emmis Communications

[Packer16]

This is an interesting and cheap re-structuring opportunity.  Emmis owns some big city radio stations and 3 clusters in smaller cities (St. Louis, Austin and Terra Haute).  The firm is in the process of buying in the preferred shares and is in a dispute with some of the preferred shareholders about price.  They have been able to retire a litte less than 2/3s of the preferred for prices in the mid-teens versus an LP and dividends in the low 60s.  Three other material events 1) the firm has an LMA and purchase offer for an LA station for $100 million ($86 million purchased by next year) 2 last year they sold 3 Chicago and NYC stations to priviate equity group and retained preferred and common stock and 3) signed an LMA with Disney for the use of one of its NYC stations that netted about $82 million.  These deals have been done with stations generating minimal EBITDA but in urban area.  Incorporating all these deals, results in a net debt amount of $50 million (including remaining FV (based upon trading price) of pfd at $17.6 million) and residual EBITDA of $28 million and FCF of $12 million.  Given a market cap of $60 million, the implied multiples are 5.0x FCF and 3.9x EBITDA.  If I use the face value of the pfds, I get the following metrics, 5.3x EDBIDA and 5.0x FCF.  The final resolution will probably be somewhere in between these values.  These are the positives. 

 

The negatives include managment trying to squeeze out preferred shareholders for less than FV of preferreds and past attempts by management to take co private.  Managment and employees won a large amount of the common stock.  Finally, before the recent run-up the firm requested and still may vote on a reverse split. 

 

Disclosure: I have a position in the EMMS common.

 

Packer 

[PlanMaestro]

It is a very interesting and cheap situation. But I do not like what the CEO/owner is trying to do to the prefs and how it reflects on him and the chance of future actions against his common equity partners. There was a recent NY Times article on it. Any recent news on that front?

[Packer16]

The other side is the preferred holders are recent hedge fund holders (not long term holders of the preferreds) and Emmis has won the best co to work for awards a number of years in a row.  In these types of situations, I have found you can protect yourself by aligning yourself with the security management holds.  Management and employees hold the common stock.  This worked out quite well with a few Malone enitities I have historically owned.  This risk and associated publicity is why it is still so cheap.  I think the final resolution for the preferred will be somewhere between the traded price and the face value and once this occurs the stock may trade up.

 

Packer   

[PlanMaestro]

Packer, picking on your brain ... SALM, ETM, CMLS, even ROIAK and EMMS look very interesting. On one extreme SALM is the less levered and on the other EMMS has its distress. How are you going about prioritizing the best opportunities in the sector?

[Packer16]

I have filtered them by either having a segment advantage (EVC, SALM, SGA and ROIAK) or a knack to do good deals (EMMS).  I have stayed away from the larger consolidators (ETM, CMLS and Clear Channel) as I can't see the advantages they bring to advertisers that either Sirius or on-line radio cannot.  SALM has a conservative talk and Christian demo, ROIAK has an African Amercian demo, EVC has a hispanic demo plus TV and SGA has a mid sized town demo and gets involved in the local community.  I have stayed away from ROIAK and EVC due to leverage.  I cannot see a path to develer to 4.0x EBITDA over the next 3 - 4 years and therefore I cannot see how the common is worth much unless they get a good takeover deal.  The HY bonds may be a better bet for this group.  I probably would not be interested in EMMS if these deals did not have the potential to delever considerably. 

 

Packer

[PlanMaestro]

Much appreciated.

[Packer16]

Plan,

 

Have you looked at any LatAm radio or TV firms?  I once owned Grupo Cabo, Radio Central and TV Azteca when they were ADRs.  At present, RC and Grupo Cabo do not appear cheap and TV Azteca is no longer an ADR.  TIA.

 

Packer

[PlanMaestro]

Plan,

 

Have you looked at any LatAm radio or TV firms?  I once owned Grupo Cabo, Radio Central and TV Azteca when they were ADRs.  At present, RC and Grupo Cabo do not appear cheap and TV Azteca is no longer an ADR.  TIA.

 

Packer

 

Not really. I took a look to Televisa in 2009 after Mexican flu but not at the right price.  TV Azteca? never ever let Salinas Pliego close. Grupo Prisa also has lots of Latin american assets (radio stations too). The friends in Spain tell me that the situation is not easy but both Malone and Slim are taking a shot.

 

Have not checked radio stations. Was not RadioCentro involved in buying some of EMMS assets? I do not remember Chilean or Argentina media stocks but I might be wrong and Brazil have not look to it deeply.

 

Latin America has been too hot for a value investor lately except for 2008 and maybe Argentina today.

 

Plan

[zizou]

Hi packer, curious if you are still in this name?

 

- Was the preferred's situation resolved?

- In looking over an investor presentation, i came across these comments:

"Significant opportunities exist for Emmis to cross sell between the WQHT/WBLS brands"

" Emmis believes significant revenue upside exists as a result of integrating the WBLS and WLIB radio stations"

 

Curious to hear your thoughts? Any way to value this upside? TIA

[Packer16]

No, I have been out for awhile.  It is trading at about 7x EBITDA, not cheap but not expensive and with the management they have I have not been interested.  The preferred share cumulative dividends have been removed and it currently pays no dividend, so the preferred is like a perpetual piece of the capital structure that cost Emmis nothing in interest.

 

Packer