Crown Up Big On Motley Fool Speculation10/13/2010 5:57 PM Eastern
Crown Media Holdings shares surged more than 45% on Wednesday ($1.17 per share) to $3.72 each after financial analysis web site The Motley Fool speculated that the parent of the Hallmark Channel could be poised for a buyout.
Crown Media has taken it on the chin in recent days as ratings for its Martha Stewart programming block have been disappointing. But on The Motley Fool web site the company appears ripe for the taking.
In an article entitled "This Stock Could Be an Easy Double" Fool scribe Jim Royal wrote that he felt a buyout coming, but even without that prospect, its improving fundamentals should warrant a higher price.
Royal went on to note several developments that should be old news to Crown investors - the $1.1 billion recapitalization by its largest debt and equity holder Hallmark Cards and the partnership with Martha Stewart Living Omnimedia. But rather than harp on Martha's dismal ratings performance - average ratings are down between 50% and 79% during the Martha programming block - Royal pointed to how the relationship allowed Crown to ramp up ad rates 117% above last year.
Royal wondered why Hallmark Cards, which already owned 80% of Crown's equity before the recap earlier this year, would go to such trouble to boost that stake to 90%. His answer: "Maybe They Want to Sell It."
Royal speculated that possible buyers could be Discovery Communications, Comcast, Walt Disney Co., Time Warner or Liberty Media. And using the 2008 purchase of the Sundance Channel by Cablevision Systems as a benchmark (that deal was valued at about $19 per subscriber) Royal speculated Crown could be worth almost $2.5 billion. That figure was based on combined subscribers for Hallmark Channel (90 million) and Hallmark Movie Channel (40 million).
Crown had tried in the past to sell the networks, to no avail. In 2006 Crown took the channels off the block after bids came in under the $1 billion-plus price tag it had set.
Whether this may be the year for a Crown deal is anyone's guess, but the notion apparently has driven new investors to the stock. Crown's trading volume surged to 1.4 million shares on Wednesday, more than 15 times the three-month average volume of 85,000 shares.