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Emmis stock hit by TV deal
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May 8, 2000: 3:54 p.m. ET
Shares drop 20%; investors balk as media company beefs up TV unit
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NEW YORK (CNNfn) - Shares of Emmis Communications Corp. fell more than 20 percent Monday as investors soured on the media company's purchase of eight network-affiliated and seven satellite television stations from Lee Enterprises for $562.5 million.
The company's shares tumbled to a session low of 32-7/8 and traded in late afternoon at 34-5/16, off 9-1/4, after Indianapolis-based Emmis (EMMS: Research, Estimates) agreed to buy the stations from Lee (LEE: Research, Estimates). Volume was more than 3.9 million shares, more than six times the stock's daily average.
 Emmis, which owns and operates 15 popular radio stations in major markets and publishes several regional magazines, said it believes the purchase will strengthen its stable of TV stations, which it eventually plans to split from its radio operations.
"For months, Emmis has been exploring the option of creating a television entity large enough to stand on its own," Emmis Chairman and CEO Jeff Smulyan said. "The Lee portfolio presents an excellent opportunity to do just that, with attractive properties that offer a strong upside."
Emmis leaped into the television market early in 1998 when it bought six television stations from SF Broadcasting. The company at that time said the purchase broadened its media holdings and was part of its long-term strategy for growth.
 The company told analysts that Emmis remains focused on radio and expects to set free its TV operations, which are seen as a drag on earnings, in three-to-four months. The split could come via a merger, an initial public offering, a spin off or tracking stock, or they could take it private with an equity partner.
"Buying radio remains our top priority, and we expect success in that area soon, which is why it is important for us to retain significant capacity for upcoming acquisitions," Smulyan said.
Analysts called the sell-off a "knee-jerk reaction," noting that despite Emmis' argument that this deal sweetens Emmis' TV crop, which includes five Fox, one CBS and one WB affiliated station, investors perceived this deal as a step in the wrong direction.
 "They bought a sector that's out of favor, and they had been telling people 'we plan on buying radio,'" said First Union Securities analyst James Boyle. "The fact that people were expecting a radio deal, not a TV deal - even if it gets you from step one to step two -- still means it wasn't what people were expecting."
Boyle cut his opinion of Emmis shares to "buy" from "strong buy," saying the stock faces some pressure in the short term, while the company plots its next move.
"Investors can see that 2-3 months out, the separation of the two sides will unlock the value," he said. "Emmis will then become a pure play radio group, in major markets where radio is growing the fastest. Then you will see the stock pop. But in the mean time its going to be bouncy." 
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Emmis Communications
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