Hallmark Cards is taking the Hallmark cable channels private at a time when they seem to be hitting on all cylinders.
Last week, Hallmark announced that it will buy the 10% it doesn’t already own of Crown Media Holdings—which runs Hallmark Channel and Hallmark Movies and Mysteries—for $5.05 a share, or about $175 million. Given the networks’ recent success, some minority shareholders think that price is too low.
In a letter to Crown Media’s board, Hallmark said it “has confidence in the company’s current management and they will continue to lead the company and its employees and manage the day-today operations at its current office locations.”
Crown Media Family Networks CEO Bill Abbott said he expects the Hallmark channels to continue to increase spending to pursue their original programming strategy.
“The board has been extremely supportive of investing in the business,” Abbott said. “Fortunately that investment has paid off for everybody, so I think in terms of the operation of the business that will be status quo.”
At a time when many cable networks are struggling to grow ratings and revenue, Crown Media reported an 18% increase in revenue for the fourth quarter of 2015, including a 22% increase in ad revenue.
The company was paying down its debt and starting to generate cash—making the timing of the buyout “unfortunate” to Sal Muoio, manager of S. Muoio & Co., which owns 1.4 million Crown Media shares.
Muoio and other minority stockholders have complained about the way they’ve been treated by Hallmark Cards. They sued over the 2011 recapitalization that diluted their share of the company but lost in court.
“They’re suddenly going to have too much cash flow and they don’t want to give any to the minority shareholders, so they’re taking it private,” Muoio said, adding, “We do think the price is light versus how the business is doing.”
In August 2013, Hallmark said it would consider taking Crown private or selling its stake when a standstill agreement expired at the end of that year. That announcement boosted the stock price 19%, to $2.49 a share. In late 2015, Crown Media stock was as high as $6.06 a share.
With the buyout at $5.05 a share, Muoio said he exploring whether minority shareholders would be able to get the company appraised to seeif the price was appropriate. “We don’t know whether we can or want to pursue that,” he said. “It’s an option that should be explored by any significant shareholder because the price doesn’t reflect the value of the business very well.”
Crown Media should be a $15 stock, Muoio said, adding that many shareholders who bought shares before the recapitalization are still underwater.
Hallmark has been finding success lately despite operating as an independent programmer in an increasingly consolidated industry. (See Independent Networks story, page 12.)
Back in 2006, Hallmark put Crown Media on the block, but major media companies balked at the asking price. The company was up for sale again in 2009, but its $1 billion in debt scared off buyers.
Once Hallmark owns 100% of Crown, it could decide again to sell.
Abbott said that while being part of a big media company could be helpful to the networks, there are also benefits to being independent.
“We’ve found advantages on the advertising side by being able to position ourselves as a distinct offering that doesn’t get packaged with a lot of other pieces,” he said.
On the other hand, “certainly the leverage that exists when you’re part of a bigger organization on the distribution side is well-documented,” he added.
The Hallmark channels have been successful because “we haven’t lost sight of our brand, which quite frankly others might have in terms of being part of bigger organizations,” Abbott said. “So for us, whatever the ownership structure looks like, it’s all about the brand at the end of the day.”
Wholly owned, the channels will be able to work more closely with the card company as it airs more holiday-themed programming year-round. “There are few entertainment companies that have the kind of retail presence Hallmark does,” Abbott said. “That we could promote that on our channels and then have promotion in-store is exciting.”