Investor Trashes Crown Plan

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S. Muoio & Co. principal
Salvatore Muoio has ended his
silence regarding Crown Media’s
controversial recapitalization

He definitely doesn’t like what he sees.

Muoio, who had sued Crown in July to block an earlier version
of the recapitalization, had agreed to set aside his suit as
Crown’s special committee of independent directors worked
out a compromise.

He broke his silence on March 2 after Crown and parent Hallmark
Cards announced a plan that would reduce its overall debt
from about $1.1 billion to $315 million but would increase Hallmark
Cards’ equity interest in the company from about 80% to
90.1%. In the meantime, the deal would dilute Crown’s minority
shareholders from 10.7% of the company’s outstanding shares
to about 3%.

S. Muoio & Co. currently owns about 5.7% of Crown stock,
or 4.2 million shares.

In a letter to Crown’s special committee filed with the Securities
and Exchange Commission March 2, Muoio said he will
likely restart his lawsuit.

“We strongly urge the special committee to reconsider before
proceeding to execute definitive documentation,” Muoio
wrote. “Be advised that, if the company or special committee
proceeds to execute definitive documentation of the proposed
transaction, we intend to pursue the litigation.”

While the new deal (see chart) off ers slightly better loan
terms (lower interest rates and longer terms), Muoio stated
that dividend payments and payment-in-kind provisions of the
convertible portions actually make it worse for shareholders.

Although the deal values Crown at about $2.60 per share
(up from the $1 per share of the old deal and the current stock
price of about $1.73 per share), Muoio claims it still undervalues

Muoio believes the deal is particularly unfair to shareholders
that have stuck with the company during the hard times,
only to be pushed aside when their patience was beginning
to show signs of paying off . He noted in his letter that Hallmark
Channel went through eight years of heavy investment
and losses of as much as $170 million annually, finally reaching
positive cash flow ($66 million) in 2008. Now, Muoio said,
the channel is ready to see profits surge.

Hallmark Cards declined to comment.