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How Much Does Corporate Governance Really Matter

February 28, 2013 | About:

I mentioned in last week’s post that I was having trouble finding any new value in the market with the exception of stocks with serious corporate governance issues.

Well, one of those “corporate governance” stocks that I’ve been seriously looking into is Crown Media (NASDAQ:CRWN).

There are some serious issues, for sure. The stock isn’t as quantitatively cheap as some microcaps I know. The balance sheet isn’t that great. There are some serious, serious corporate governance issues. And the industry is undergoing some mammoth changes.

But I think there are two things that make this all so interesting.

  • The company is experiencing strong growth and, given their operating leverage, most of that flows straight through to the bottom line and tax assets.
  • The industry is rapidly consolidating, and CRWN is one of the few remaining independent channels left. A large buyer could come in and realize a ton of synergies on both the cost and revenue side from buying them.
For an investor, it really comes down to this- do you think the Hall family will do what’s in everyone’s best interest and sell for a big premium, or do you think the Hall family will continue to screw over minority shareholders? It really does make the most sense to sell, but you never know how these situations will play out.

Normally, I’d go into much more detail on financials and history of the company. But they’ve been written up so well multiple times that I really have nothing to add. So instead I’m going to point you to those write ups.

  1. Boyar research
  2. Value investors club
  3. Seeking alpha
Then check out this article on AMC networks attracting buyout consideration. Pay special attention to the synergies piece, as the same can definitely apply to CRWN.

Finally, read this article on CBS looking to buy cable assets. Hallmark is specifically mentioned as a potential target.

As a bonus, check out Peter Okin’s comments / questions on CRWN’s most recent conference call. Spot on, and management’s answers are quite revealing (and disappointing).

Overall, I think CRWN represents what’s great about being a stock investor. Downside is limited to zero, but given the leverage and what comparable go for in acquisitions, the upside blows the downside out of the water. I think there’s at least a 50% chance the company gets acquired, but even if it’s only 25% or so the risk reward here is outstanding.

I haven’t invested yet, but I’m certainly considering it.

Disclosure- none.

Rating: 3.3/5 (3 votes)


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