market folly

Dan Loeb's hedge fund firm just filed a 13D with the SEC regarding shares of Emmis Communications (EMMS / EMMSP). The activist filing was made due to portfolio activity on July 9th, 2010 and Third Point has disclosed a 2.3% ownership stake in Emmis Communications with 783,379 shares. This share total is reflective of their ownership of 321,057 shares of 6.25% Series A Cumulative Convertible Preferred Stock, traded on the Nasdaq under ticker EMMSP. (Emmis' regular common stock trades as EMMS). This is the latest activity from Dan Loeb's hedge fund firm, but you can of course view the rest of Third Point's portfolio and exposure levels as well.

Since this is a 13D filing, this means Loeb and his firm are back to their usual activist ways. On June 24th, 2010 Third Point purchased 10,000 shares of preferred stock at $22.00 per share. On July 9th, 2010 Third Point purchased a whopping 105,057 shares of preferred at a price of $21.7484 per share. Their stake results in ownership of 11.4% of the preferred stock and 2.3% of common stock if they were to convert their shares.

In order to understand why Third Point purchased this stake and has filed an activist 13D, let's first detail some background. Back on May 25th, 2010 Emmis Communications planned a merger that would result the company being taken private by Jeffrey H. Smulyan, the company's chairman and CEO. This transaction would result in a cash tender offer for the common stock, an offer to exchange the preferred stock for new 12% PIK Senior Subordinated Notes due 2017, and a proxy to amend certain terms of the preferred stock.

Fast forward to a few days ago and we see that on July 9th, Loeb's Third Point and numerous other investment firms entered into a lock-up agreement pursuant to which each of them agreed to "(1) vote or cause to be voted any and all of its preferred stock against the proposed amendments; (2) restrict dispositions of preferred stock; (3) not enter into any agreement, arrangement or understanding with any person for the purpose of holding, voting or disposing of any securities of the Issuer, or derivative instruments with respect to the Issuer; (4) consult with each other prior to making any public announcement concerning the Issuer; and (5) share certain expenses incurred in connection with their investment in the preferred stock, in each case during the term of the lock-up agreement."

So, the wheels are in motion for a bit of a stand-off in Emmis Communications' proposed takeover. Those of you looking to read an enthralling legal document can find the lock-up agreement as filed with the SEC here. We'll continue to watch the developments here and will update as necessary. For more from Loeb's hedge fund, we recently detailed Third Point's portfolio breakdown as well as Third Point's first quarter letter.

Taken from Google Finance, Emmis Communications is "a diversified media company, principally focused on radio broadcasting. It owns and operates seven fort minor (FM) radio stations serving New York, Los Angeles and Chicago".

For more from Dan Loeb, check out his recommended reading list. And be sure to check Market Folly daily for the latest hedge fund portfolio moves.