In a creatively structured deal with hedge fund Standard General, Emmis Communications is charting a new future that opens up two growth paths. The 40-year-old radio company is getting a nearly $100 million cash infusion to fund acquisitions into new areas outside its traditional radio wheelhouse. And Mediaco, the new venture Emmis is forming with hedge fund Standard General will give Emmis a launching pad to build a new enterprise in tandem with a deep-pocketed investor.
“We really have to two ways to grow: old Emmis, which will look at different areas and Mediaco, which will be the new enterprise,” Emmis CEO Jeff Smulyan told Inside Radio in an interview shortly after the deal was announced Monday.
The springboard is Emmis’ sale of its New York radio crown jewels – urban AC WBLS (107.5) and rhythmic CHR “Hot 97” WQHT to Standard General. The New York investment firm will partner with Emmis to form a new public company, Mediaco Holding. Emmis will receive $91.5 million in cash, a $5 million note and 23.72% of the common equity of the new publicly traded company, which is expected to be listed on NASDAQ, while Emmis will remain a separate public company.
“We looked at this and said, ‘We’re getting $96 million and keeping our receivables and getting a 24% stake that could be worth $30-$50 million,” Smulyan explains. “We hope this grows into a very nice investment, and we’ll have the ability to help steer that.”
What Smulyan is now calling the “original” or “old” Emmis is being reduced to four radio stations in its home base of Indianapolis, along with Indianapolis Monthly magazine and Digonex, a dynamic pricing company. The company also owns its Indy headquarters and a tower site in nearby Whitestown, IN. “Indy is home. We’ve always said we’d probably stay here. But you never say never. We’re comfortable here,” Smulyan says.
Emmis is in talks to sell gospel WLIB New York and still owns sports “ESPN NY 98.7” WEPN-FM New York, which it leases to ESPN Radio under a four-year deal.
‘Something Completely Different’
The sale of its two biggest radio stations is the latest in a series of sell-offs by Emmis. In June, it agreed to sell its controlling 50.1% interest in its Austin, TX cluster in a deal valued at $39.3 million. Once the latest deals close, Emmis will be debt-free, Smulyan says, and have cash “to create new value, buy some things and see them grow. It could be something completely different,” he offers. “It’s been very gratifying, because we’ve been approached by people about new ventures.”
Emmis says it will remain active in the management of both stations and provide corporate services to Mediaco under a management agreement between the parties. Smulyan will be CEO of Mediaco and will continue as chairman and CEO of Emmis. Standard General gets to appoint a majority of Mediaco’s board with Soohyung Kim, CEO, Managing Partner and Chief Investment Officer of Standard General, named Mediaco Chairman. “We’ve known Soo for a long time. He would like to build a new company and we’re looking forward to partnering with him on it,” Smulyan observes.
Founded in 2007, Standard General has $1 billion in funds and focuses on companies “with complex capital structures that are undergoing dramatic change or are faced with material events,” the company says on its website. No stranger to the media business, Standard General became the majority owner of TV station group Young Broadcasting after its emergence from chapter 11 bankruptcy in 2010. Young Broadcasting combined with Media General in November 2013, which then merged with LIN Media, before selling to Nexstar Broadcasting in 2016. Standard General was in line to buy nine TV station spinoffs before the Sinclair Broadcasting purchase of Tribune Broadcasting was derailed by the FCC.
Smulyan says he got to know Kim at various investor conferences and meetings over the years. “We talked about doing some things together and this is the culmination of that. They are looking to do some more things in media.”
With a nearly 24% stake in Mediaco and him serving as CEO, Smulyan says Emmis will manage whatever acquisitions Mediaco makes. “We think it’s a launching pad that creates some value. If we go out and create a few hundred million dollars in value in the next few years with Mediaco, it will be a great deal. The ball is in our court.”
But systematically selling its radio stations in Los Angeles, St. Louis, Terre Haute, Austin and now New York has been bittersweet, Smulyan says. “Nobody loves radio more than I do but it’s no secret that it’s not been a growth industry for the last 10 or so years,” he contends. “We really feel that it’s time to move in a new direction We’d like to tackle some businesses that are growing 5-10% a year and see if we can make them grow a little bit better.”