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Crown Shareholder Threatens Recap Deal

3/02/2010 12:42 PM Eastern

A day after Crown Media accepted a recapitalization proposal from its largest debt and equity holder, one of its larger minority investors has threatened to go forward with a lawsuit to block the deal.
Crown accepted a proposal from Hallmark Cards that would swap $1.1 billion in debt for a $315 million loan, $185 million in convertible preferred stock and $550 million in equity that would push Hallmark's ownership of the company to 90.1%. The deal has slightly more favorable terms than a May proposal that would have given Hallmark Cards 95% equity control of Crown.
In a 13D filing with the SEC Tuesday morning, S. Muoio & Associates, one of the largest minority shareholders of Crown Media with 5.7% of outstanding shares said in a letter to Crown Media that the new deal is unacceptable.
Muoio had filed suit in Delaware Chancery Court to block the deal in July, but has put that litigation on hold as Crown and its special committee of independent directors attempted to hammer out a compromise with Hallmark. Crown agreed to allow Muoio seven weeks to review the new proposal before it closed the deal.
They won't have to wait that long.
In the letter to Crown's special committee, S. Muoio & Co. principal and chief investment officer Salvatore Muoio wrote that the new deal continues to be dilutive to existing shareholders -- it will reduce minority holdings in the company from 10.7% to 3%, according to the SEC document. Muoio stated that he would be willing to discuss the proposal with the special committee, but that may be moot as he noted that the committee appears ready to move forward with the recapitalization with or without input from minority shareholder.
"We strongly urge the special committee to reconsider before proceeding to execute definitive documentation. Be advised that, if the company or special committee proceeds to execute definitive documentation of the proposed transaction, we intend to pursue the litigation," Muoio wrote.

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