S. Muoio & Co. LLC v. Hallmark Entertainment Investments

2011 WL 863007 (2011)

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S. Muoio & Co. LLC v. Hallmark Entertainment Investments

Delaware Chancery Court
2011 WL 863007 (2011)

Facts

Crown Media Holdings, Inc. (Crown) (defendant) was unable to pay the debt owed to its controlling stockholder, Hallmark Cards, Inc., and affiliates (collectively, Hallmark) (defendant). Crown’s board of directors formed a three-person special committee to secure a buyer. Despite negotiations with several companies, the efforts were unsuccessful. Hallmark suggested a recapitalization in which Hallmark would exchange its Crown debt for Crown Class A common stock and new preferred stock—a transaction that would increase Hallmark’s ownership of Crown’s stock from approximately 80 percent to approximately 90 percent. Another Crown stockholder, S. Muoio & Co., LLC (Muoio) (plaintiff), sought to enjoin the planned recapitalization, but the litigation was stayed while the special committee considered Hallmark’s offer. Acting on the advice of its financial advisor, Morgan Stanley, the special committee decided to go through with the recapitalization. Muoio then brought suit for rescission in the Delaware Chancery Court, arguing that the recapitalization stock price—$2.59 per share—had unfairly undervalued Crown.

Rule of Law

Issue

Holding and Reasoning (Chandler, J.)

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