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Large Cable Firms May Vie for Hallmark Channel

Analysts expect Time Warner Inc., The Walt Disney Co., Comcast Corp., Liberty Media Corporations and other major cable companies to be among the leading suitors for Studio City-based Crown Media Holdings Inc. Crown, the parent of the Hallmark Channel and the Hallmark Movie Channel, announced last month that it was exploring “strategic alternatives for the company, including a potential sale of the company to a third party.” With the fate of the firm’s 190 employees (115 in the Valley) hanging in the balance, analysts expect that layoffs will be inevitable. Crown Media occupies a strange space on Wall Street, as a publicly traded entertainment firm focused on primarily one cable network. Partially owned by corporate behemoths Hallmark Entertainment Holdings Inc., a subsidiary of Hallmark Cards Inc., Liberty Media and J.P. Morgan Partners LP, the company has failed to make a profit in recent years. In its most recent quarterly statement filed last month, the company claimed a net loss of $56.3 million or $0.54 per share, versus a loss of $40.6 million, or $0.39 per share, in the second quarter of 2004. Most analysts chalked up the losses to the difficulties inherent in operating a single cable channel. Most of Hallmark’s competitors offer larger amounts of content which allow for less overhead, lower programming costs and better carriage fees, all things that have severely impacted Crown’s bottom line. “It just didn’t make much sense for them to operate as a stand-alone cable network with such limited float,” Richard Routh, an analyst for Jefferies & Co., said. “They would eventually have been profitable, but it would’ve taken a long time. They had to pay a lot for launch support in the last few years and they had to amortize that. As a result, it hit the income statement and it wasn’t profitable.” While Routh declined to estimate a potential sale price for the company, he stated that a fair price would be between $12 and $14 per share. As of the close of trading on September 2, Crown’s stock was trading for $10.65 a share, up from $8.84 on August 17, when Crown went public with its plans. At the moment, Crown’s spokespeople claim that negotiations have not yet begun with potential buyers. However, the company has hired an investment bank to conduct a search. “There is no set timeline for which we are going to proceed,” Crown Media spokeswoman Mindy Tucker said. “The investment bank will work with the company to identify potential partners. At this point that’s the only thing that’s definite.” But locally, layoffs seem imminent if a sale goes through, as undoubtedly Crown’s eventual buyer would lay off some employees due to an overlap between the two companies. “You’ll have some layoffs because Crown Media’s staff would be absorbed into a pre-existing public entity and therefore you don’t need all those back office type employees,” Dennis McAlpine, the managing director of McAlpine & Associates, said. “Conceivably though, you might add some people in the programming area.” Routh agreed that layoffs are likely. “There will probably have to be some layoffs. Whoever is going to buy Crown will inevitably bundle them with their existing operations. There will inevitably be some redundancy,” Routh said. A memo distributed to Crown Media employees from company President and CEO David Evans read, “I realize that this news can be unsettling and that you will want to know what this announcement means for you. The executive team and human resources will be scheduling meetings with employees and will provide answers to many of your initial questions. This is just the start of the process and additional information will be made available when appropriate.” Publicly, Tucker stated that it was much too early to speculate on potential layoffs within the company. However, she mentioned that the board was taking precautions. “Crown’s board has authorized a severance plan for the employees, in the event that there would be a loss of jobs in the context of a transaction. But it’s too early to talk about specifics,” Tucker said.

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