Crown Wanted Buyout

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Greeting-card giant Hallmark Cards shot down several
alternatives to its $1.2 billion
recapitalization proposal
for Hallmark Channel parent
Crown Media Holdings in the
months leading up to Crown’s
ultimate acceptance of the deal,
including a recommendation
that Hallmark take the company

Crown accepted a recapitalization
plan earlier this month
that would cut its debt in half
while yielding 90.1% control to
Hallmark Cards. The deal, which
has been soundly criticized by at
least one minority shareholder, is
scheduled to close on April 19.

On March 11, Crown minority
shareholder Salvatore Muoio
filed an amendment to his suit
in Delaware Chancery Court attempting
to block the deal, stating
that Crown and Hallmark have
breached their fiduciary duty to
shareholders with the deal.

Muoio claims the transaction
is unfair to shareholders other
than Hallmark Cards in that it
will dilute their holdings by
as much as 70%.

Hallmark, which does
not need approval from
minority shareholders to
complete the recap deal,

Muoio, who
owns about
5.8% of Crown stock, declined
comment because the suit is
pending, and Hallmark declined

A trial date on Muoio’s suit has
been set for Sept. 21.

Crown’s special committee of
independent directors signed off
on the plan in February, basically
because its advisers didn’t think a
better deal would be forthcoming,
according to a proxy statement
filed March 29 with the Securities
and Exchange Commission.

The committee rejected Hallmark’s
first attempt at a recap in
September 2009, citing onerous
interest rates and loan terms that
were too short.

The committee instead urged
Hallmark Cards to buy all of the
outstanding shares in Crown it
didn’t already own (about 11 million),
a transaction that would
have taken Crown private. Hallmark
declined, according to the

After several months of negotiations,
Hallmark Cards agreed to
sweeten the loan terms, in return
for Crown requiring a simple majority
vote to approve the deal.

Hal lmark Cards current ly
owns about 70% of Crown shares
and has 95% voting control.

Muoio claims in his suit Crown
could have refinanced the debt
owed Hallmark Cards, or found
another debtor to take the obligation

Debt-heavy Crown has been on
shaky financial ground for years.
But in the past 18 months it has
begun to reap the benefits of patience.

Crown has its first full year of
positive cash flow in 2008, at $66
million. Cash flow rose 23% in
2009 to $81.6 million, after onetime

Crown projects its revenue will
grow at a 10% annual clip from
$279.6 million in 2009 to $411.4
million in 2013.

In the proxy, it forecasts cash
flow will more than double to
$175 million by 2013.

Crown’s growth will depend in
part on performance of programming
from Martha Stewart Living
Omnimedia. Crown and MSLO
signed a programming deal in
January that has shows from
Stewart’s company running on
Hallmark Channel from 11 a.m.
to 6 p.m. weekdays.

There has been speculation
about Crown and MSLO creating
a separate Stewart-themed
channel. In his suit, Muoio
points to Stewart as a potential
buyer of the Hallmark