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Crown Media Quiet On Hallmark Cards Proposal

7/05/2009 2:00 AM Eastern

With a little more than three weeks to make a decision on whether to accept a restructuring proposal from its largest equity and debt holder or face possible bankruptcy, Hallmark Channel parent Crown Media Holdings is keeping its cards very close to its vest.

In late May, Hallmark Cards — which owns about 67% of Crown’s equity and 85% of its voting stock — proposed a recapitalization, issuing $500 million in debt and $550 million in preferred equity to replace a $1.1 billion obligation Crown owed Hallmark Cards.

Hallmark Cards has said it wants a decision from Crown by the time it files its next 10-Q quarterly financial statement with the Securities and Exchange Commission, expected in late July or early August.

While Hallmark Cards characterized the proposal as a way for Crown to halve its debt to $500 million from $1.1 billion, others saw the proposal as a way to dilute other shareholders into oblivion.

Salvatore Muoio, whose S. Muoio & Co. owns about 5.2%, or 3.9 million, of Crown’s outstanding shares, has been a vocal critic of the proposal. Muoio estimates the deal will give Hallmark Cards 95% of Crown’s total equity, leaving 5% to be split among the remaining shareholders.

Muoio also has been a critic of the process. He claims that a special committee of directors, set up to evaluate the deal in June, doesn’t have enough time to weigh all of its options.

Crown does have other options, said Muoio, and could even tap the credit markets to refinance the debt. Muoio pointed to LodgeNet Entertainment’s recent $57.5 million convertible-note offering.

“There have been some high-yield deals done,” Muoio said. “It’s not like companies can’t raise sub debt. The markets are improving. I think the independent committee has a lot to look at. They really have to get up to speed very quickly and the proposal doesn’t leave them a lot of wiggle room.”

Crown, after saying in May it was assembling a special committee of independent directors to evaluate the Hallmark Cards proposal, buried the announcement that the committee had been formed in its June 12 proxy statement.

The committee is former Kansas City Power & Light CEO A. Drue Jennings, ESPN chairman emeritus Herbert Granath and former CBS CEO Peter Lund.

Hallmark also said it would hire a financial adviser to evaluate the proposal, but hasn’t said who it is or if one has been hired. Muoio said he has not been told the name of the financial adviser.

Crown Media spokeswoman Nancy Carr would neither confirm nor deny that a financial adviser had been selected, and declined further comment.

September