Hallmark To Crown: Thinking Of You

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Apparently the deadline that Hallmark Cards set for Crown Media Holdings to accept or reject its recapitalization offer wasn't really a deadline.
Hallmark Cards, which also is Crown's largest shareholder and its largest debt holder, proposed a recapitalization on May 28 that would swap about $1.1 billion of Crown debt for a $500 million loan and $550 million in new equity. In filings with the Securities and Exchange Commission at the time, Hallmark Cards requested that a decision be made on whether to accept the proposal by the time Crown filed its 10-Q quarterly report with the SEC. That would put the date at around late July or early August.
While some Crown shareholders took that as a deadline, attorneys for Hallmark Cards sent a letter to counsel for Crown's special committee of independent directors dated July 16 to clarify any misunderstanding.
In the letter, filed with the SEC on July 17, attorney John F. Johnson wrote that while Hallmark said it had hoped to receive a response from its proposal by the time the 10-Q was filed, "that filing date was in no way intended as any sort of deadline."
The letter continues that Hallmark also understands that the special committee of independent directors assembled to review the proposal "need to take whatever amount of time it determines to be required to make what it and its advisors determine to be an appropriate response to our proposal."
Johnson added that Hallmark also understands that while it believes Crown's refinancing options are limited - it has said that it believes Crown cannot pay the $1.1 billion owed it by May 10, 2010 - "we have assumed the special committee will explore other refinancing alternatives."
That may take awhile. While Crown assembled a special committee of independent directors to evaluate the proposal shortly after it was received, the committee only hired an independent financial adviser (Morgan Stanley) less than 7 days ago (July 14).
Interestingly, the argument that Crown's special committee of independent directors would not have enough time to properly evaluate the Hallmark Card proposal was a major complaint of Crown minority investor Sal Muoio prior to his filing a suit July 13 to try to block the deal. Muoio had stated in the past that Hallmark appeared to be threatening Crown with bankruptcy in order to push the recapitalization deal through.

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