The three transactions, expected to generate proceeds of nearly $100 million, feature a Local Programming and Marketing Agreement (LMA) with ESPN Radio to program content and to sell advertising on Emmis-owned New York's 98.7 FM; the sale of intellectual property rights for the same 98.7 FM station, also known as Kiss FM, to the owner-designate of New York urban stations WBLS-FM and WLIB-AM; and a loan agreement with a large insurance company.
The loan agreement, reached with a unit of Wells Fargo & Co. and Teachers Insurance and Annuity Association of America, calls for Emmis' 98.7 FM license from the FCC to be used as security for a 4.10% promissory note maturing in August 2024. A special Emmis subsidiary will then collect an estimated $75 million in net proceeds to repay indebtedness under its senior credit agreement, including all amounts outstanding under its revolver.
Emmis insisted the long-term LMA for 98.7 FM does not prefigure a sale of the station to ESPN. It also promised "generous severance packages" to employees adversely affected by the announcements.
Radio observers considered the moves consistent with an announcement earlier this month that Emmis had incentivized the designated buyer of its KXOS-FM station in Los Angeles to accelerate that deal's closing. The incentive temporarily reduces the price that Grupo Radio Centro SAB de CV or a designee must pay for KXOS to $85.5 million. GRC entered into a contract three years ago to buy the station on or before 2016 for $110 million.
Indianapolis-based Emmis, with less than $10 million in cash and nearly $240 million in debt, also received a cash infusion from a deal struck last June with Merlin Media LLC. Merlin, which is run by former Tribune Co. CEO Randy Michaels, assumed a controlling interest in three major-market radio stations for $120 million in cash.
As the country's eighth-largest publicly traded radio group, Emmis owns 18 FM and two AM radio stations. Founded by Smulyan in 1980, it went public in 1994 with an initial offering of common stock priced at $7.75 per share. However, even with Thursday's mid-session boost, the price today barely tops $1.00.
The stock's poor performance has figured into two unsuccessful take-private attempts. The most recent, initiated in May 2010, devolved into suits and countersuits between Smulyan and his would-be backer, New York-based hedge fund Alden Global Capital, after being held up for months by a group of preferred shareholders with enough power to thwart take-private negotiations.
Emmis, which coincidentally plans to celebrate 30 years of Kiss FM this weekend, left little doubt that the transition from diary-obtained ratings to Arbitron Inc.'s Portable People Meters bears some of the blame for its New York retreat. Many urban and Hispanic stations have contended the transition to PPM-determined ratings unfairly discounted the size of their listening audiences.
"Recent changes in the way radio ratings are measured made it very difficult for us to find success with Kiss FM, despite the great work of our Emmis New York team," Smulyan said. But with the financial flexibility afforded by recent actions, he continued, "we look forward to enhancing our service to New York's urban community at our award winning Hot97 brand."
For its most recent round of transactions, Emmis turned to Paul, Weiss, Rifkind, Wharton & Garrison LLP and Wiley Rein LLP for counsel and Moelis & Co. for financial advice.
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