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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Squeeze Out Over 70% Returns From Crown Media Holdings 21 comments
    Aug 30, 2013 2:18 PM | about stocks: CRWN, CBS

    Crown Media Holdings, Inc. (NASDAQ:CRWN) is a squeeze out candidate that we expect to appreciate by over 70% annualized in the months ahead. The stock trades at an attractive price with a catalyst to unlock its considerable value.

    CRWN owns two properties: the Hallmark Channel and the Hallmark Movie Channel. This inventory is too small to be optimized as a standalone publicly-traded company. It would be far more efficient to be either private or the target of a strategic acquisition. Over 90% of the equity is owned by Hallmark Cards, Inc. It would be reasonable for the majority owner to squeeze out the minority shares and de-list the stock in order to save on expenses unless they sell it to a larger competitor. We recently discussed the virtues of squeeze out opportunities in Squeeze Out Some Gains From Uranium One and also discussed the deal prospects for companies that own just one or two stations in Heads You Win, Tails You Tie With Outdoor Channel.

    The Hallmark Channel is the only major basic cable channel not owned by a media conglomerate. The best way for CRWN's board and management to unlock shareholder value would be in a sale to a large media conglomerate. CBS Corporation (NYSE:CBS) is one logical buyer. The company's management is aligned and focused on their shareholders. We expect that CRWN will be sold early next year and that the price per subscriber will translate into a deal price of at least $4 per share.

    The intrinsic value of CRWN based on their historic earnings performance currently stands at $4.17 per share. The chart below shows the progression of earnings over the last 8 quarters. Over that time, the rolling TTM earnings for the company have improved from $73.7M one year ago to $119.2M currently, driving the valuation from $2.49 per share to $4.17 per share. This assumes a revenue growth of 5%.

    We believe the shares are worth at least $2.60, and the company is an attractive takeout candidate at as much as $4.00 per share. The likelihood of a takeout occurring between now and February 1, 2014 is about 75%. The expected value is well above the current market price. What specific outcome is most likely? It would be surprising to have something happen other than a corporate transaction, and it is almost certain that such a deal would offer shareholders a premium to the current price.

    Disclosure: I am long CRWN.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding securities described in this article without further notification.

    Stocks: CRWN, CBS
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Comments (21)
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  • User666
    , contributor
    Comments (81) | Send Message
     
    new position?
    30 Aug 2013, 02:30 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4041) | Send Message
     
    Author’s reply » Started circa OUTD.
    30 Aug 2013, 02:41 PM Reply Like
  • ValueArtifex
    , contributor
    Comments (104) | Send Message
     
    Agree. Excellent breakdown Chris - this is quite the mispriced gamble.

     

    Long CRWN
    30 Aug 2013, 02:44 PM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    Thanks. So from reading the last conf call it seems there is a standstill agreement until the end of the year. Any reason why this was put in place? Whoever Peter Okin is he didn't seem particularly happy with management on the call.
    30 Aug 2013, 03:03 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4041) | Send Message
     
    Author’s reply » Outside shareholders are none too happy with the management. There is a history here that dates back to their recapitalization (http://1.usa.gov/1coAA4p). The standstill relates to that. So, I would be unsurprised if they take it private or sell immediately following the expiration of the standstill.
    30 Aug 2013, 03:10 PM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    Perfect thanks.
    30 Aug 2013, 03:30 PM Reply Like
  • chuckseb
    , contributor
    Comments (50) | Send Message
     
    Hm. More to think about on CRWN. Any thoughts on price in the last month of the quarter?
    3 Sep 2013, 10:43 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4041) | Send Message
     
    Author’s reply » Thoughts on CRWN's price? I think it is low.
    3 Sep 2013, 10:48 AM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    19 days till standstill agreement expires!
    13 Dec 2013, 12:03 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4041) | Send Message
     
    Author’s reply » Yep, we should see some progress shortly thereafter.
    13 Dec 2013, 12:04 PM Reply Like
  • TheCompleatAngler
    , contributor
    Comments (162) | Send Message
     
    CD, has your estimate of Crown's intrinsic value moved more than marginally from the estimate you made five months ago of $4.17?
    13 Dec 2013, 12:18 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4041) | Send Message
     
    Author’s reply » Nope. That still looks right to me.
    13 Dec 2013, 12:42 PM Reply Like
  • TheCompleatAngler
    , contributor
    Comments (162) | Send Message
     
    One thing I've wondered about is how much of a catalyst the expiration of the standstill agreement could be because a term of the agreement permits a tender offer during 2013 as long as a majority of the minority holders vote in favor. So it seems like if Hallmark wanted to do a tender for the minority shares, it could do so at any time this year. I've struggled to see that waiting until the standstill agreement would be of any benefit to Hallmark in acquiring the remaining 10% of the compamny through a tender. After the standstill agreement expires, Hallmark would, however, be able to acquire more shares by non-tender means, such as open market purchases or privately negotiated transactions. If my thinking about this is issue is off base, I would gladly be enlightened by CD or anyone else.
    13 Dec 2013, 12:50 PM Reply Like
  • ValueArtifex
    , contributor
    Comments (104) | Send Message
     
    If there is any action prior to 2014 there is a .50 cent per share penalty that Hallmark has to pay to the owners of the remaining equity because of a standstill agreement.
    13 Dec 2013, 01:25 PM Reply Like
  • TheCompleatAngler
    , contributor
    Comments (162) | Send Message
     
    valueartifex, there are two definitions to "premium" transaction, one of which doesn't have the $.50/share increment.
    13 Dec 2013, 01:34 PM Reply Like
  • TheCompleatAngler
    , contributor
    Comments (162) | Send Message
     
    CD prompted me to revisit this situation intensively today. Given management's history, I wouldn't be surprised if they tried to screw the minority holders--and they certainly could. For instance, Hallmark could immediately do a short-form merger after the expiration date at an unfair price, as Hallmark's last 13D/A says might happen. I think any holders of CRWN need to be prepared to defend themselves if the majority holder tries to take advantage of them by seeking appraisal rights.
    14 Dec 2013, 03:16 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4041) | Send Message
     
    Author’s reply » We are involved in appraisal rights elsewhere and think it is a promising endeavor: http://seekingalpha.co...
    14 Dec 2013, 06:55 AM Reply Like
  • arbtrader
    , contributor
    Comments (170) | Send Message
     
    I've started to look into this and have seen no signs the BOD or Mgt will uphold anything but the bare minimum of minority shareholder rights.

     

    The # of shs bt by Mgt is very telling. They have to be aware either directly or indirectly there will be a liquidity event very soon. Yet they don't put up any money.

     

    Not a fan of Carl Icahn tactics, but in this case I'd welcome a loudmouth activist. If you have read the Q3 transcript (which is hilarious) there is little the current Mgt can say in their defense except a few platitudes. I doubt there is enough liquidity to interest CI, though.

     

    A cynic might think the parent pulls an LBO at 4$ish, then flips to a media conglomerate quickly at a much higher multiple.

     

    so perhaps 20% upside from here within 6 months? Best, AT.
    14 Dec 2013, 10:58 AM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    Any new thoughts on CRWN? The quarter was good, but not much else has changed. Management unresponsive. Shareholders unhappy.

     

    I do wonder if management really has any interest in the shareholders. I read through the transcript and the excerpt below really got to me. Last I checked it is management's job to make sure their stock gets attention and all the shareholders are served. I don't see them making much of an effort to make presentations at conferences. Of course with Hallmark owning 90% of the company I'm not sure any analyst would bother.

     

    "Lawrence M. Stern - Stern Capital
    But why do you think this Company remains so uncovered from either your perspective, Bill's perspective, from Mr. Stanford's perspective? You just produced the best results, you told us you came in second to ESPN during the last quarter and certain marks, and yet from a Street perspective, this is a blank slate of which there is absolutely no knowledge that Crown even exists as a public company. Thank you.
    Andrew Rooke - Executive Vice President and Chief Financial Officer
    Certainly Lawrence, as you know, we respond to analyst calls as they come in, and they do come in. Beyond that, we're not responsible for who or how our stuff is covered by the Street."
    21 Feb, 10:14 PM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    Any news on CRWN today? I see nothing. There was an insider purchase last week, but nothing today. Something going on.
    10 Mar, 03:54 PM Reply Like
  • ValueArtifex
    , contributor
    Comments (104) | Send Message
     
    Indeed. Very interesting and unusual volume for the past two sessions. I agree that something is going on.
    10 Mar, 05:07 PM Reply Like
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