Crown Nears Hallmark Recapitalization
Hallmark Cards To Gain 90.1% Control
Mike Farrell -- 3/1/2010 5:50:49 PM
Crown Media, the parent of the Hallmark Channel, has approved a proposed recapitalization by its largest debt and equity holder, Hallmark Cards, bringing the greeting card giant another step closer to gaining 90.1% of its outstanding shares, according to documents filed with the Securities and Exchange Commission Monday.
Hallmark Cards has been trying to push through a recapitalization of Crown, which owes the card maker $1.1 billion, since May. Hallmark's initial proposal -- which would have swapped the $1.1 billion in debt for a $500 million loan and $550 million in equity -- came under fire from some shareholders who claimed the deal would dilute their holdings into oblivion.
And it sparked one shareholder - S. Muoio & Associates - to file suit last year to block the deal.
But since then, Hallmark has amended its proposal to include less onerous terms. On Feb. 9, Hallmark proposed a deal that would recapitalize the company in two transactions - a $315 million loan, and $185 million in convertible preferred stock. The balance of Crown's debt ($600 million) would then be converted into Class A common stock which would revert to Hallmark Cards. As a result of the deal, Hallmark would end up with 90.1% of Crown's outstanding shares.
"We believe the consummation of the recapitalization will be a very positive development for the company and with the significant reduction in our outstanding debt, will help us maintain the operating health of our company," Crown CEO Bill Abbott said in a statement.
If the deal were completed, Crown would have about $315 million in debt.
Muoio, who agreed to put his lawsuit on hold while Crown and Hallmark worked on the recapitalization plan, declined to comment.
However, both Hallmark and Crown have agreed to allow Muoio seven weeks, beginning on March 1, to review the new proposal before closing on the deal. After that time, Muoio can decide whether to restart his lawsuit, seek an injunction on the deal or drop his litigation and allow the deal to go through.