Seven weeks after launching a new Los Angeles newspaper amid great fanfare, the Orange County Register's parent company, Freedom Communications Inc., is showing signs of financial distress.
The Santa Ana company said Tuesday that it is merging the Long Beach Register, a newspaper launched in August, into its Los Angeles counterpart and imposing immediate two-week furloughs companywide, to be taken by the end of July.
Other cost-cutting measures include shrinking the number of news pages 25% and offering buyouts, as a precursor to potential layoffs. Newsroom personnel were told the company planned to cut up to 100 jobs.
"The major red flag here is the immediate furloughs," said Ken Doctor, a media analyst for Outsell Inc. "It screams out: We don't have enough cash to make payroll."
In January, Freedom Communications laid off 71 employees in what management described as a "difficult but important restructuring" necessary "to tackle the next phase of our growth."
But combined with Tuesday's announcement, the actions look more like an about-face from two years ago, when former greeting card company executive Aaron Kushner bought the Orange County Register for between $50 million and $60 million.
He pledged then to bulk up the newspaper staff and expand the print product, rather than invest heavily in online operations.
Before the cuts, the news organization had added about 175 journalists, launched several hyper-local newspaper sections and set up a pay wall on its website. Kushner followed up by buying the Riverside Press-Enterprise last year for $27.25 million.
Freedom's bold expansion had been heralded as a vote of confidence in newspapers at a time when advertisers are shifting away from print media. Skeptics wondered why Kushner was focused on print while other news organizations have been concentrating on their digital operations.
"They had a contrarian strategy on print, and it's not been borne out," Doctor said. "Print is going away."
In a memo Tuesday, the company said it is offering severance packages to newsroom employees, who have until Monday to decide whether they will take up to 20 weeks' worth of pay to leave voluntarily. The newspaper company expects to eliminate 20 to 100 jobs, depending on the salaries of those who leave, employees said they were told during briefings.
Eric Morgan, a company spokesman, would not confirm the buyout target range but acknowledged that layoffs would "be the second option if we do not reach a sufficient participation level."
Employees who take the company's buyout offer will leave by June 20.
Freedom Communications is also requiring employees companywide to take two weeks of unpaid leave. Kushner and co-owner Eric Spitz also are taking the two-week furloughs, according to the Orange County Register's online account of the cutbacks.
Workers within the newsroom described a grim atmosphere Tuesday as Register Editor Rob Curley held a series of meetings to tell stunned employees about the cutbacks.
"People are hugging, sad, shocked," said one Register employee who asked not to be named because of the sensitivity of the topic.
Kushner and Spitz sought to reassure the staff.
"Critics will try to say that we have failed. To the contrary, the failure would be if we did not try at all, or if in our measured success we did not adapt so that we could continue to invest in our growth," Kushner and Spitz wrote in a memo to the staff.
In addition to slashing its workforce, the Register expects to achieve a 25% reduction in news pages in part by cutting the Orange County business section from seven to five days a week and folding a stand-alone fashion section into a different part of the paper.
Freedom will retain its Long Beach bureau but will publish a stand-alone edition of the Long Beach Register only on Sundays, beginning June 15, the company said. The other days of the week, the L.A. Register will feature a Long Beach section.
"There will still be extensive Long Beach coverage," said Paul Eakins, editor of the Long Beach Register.
Since buying the paper in summer 2012, Kushner has bet that a strong focus on local news would win back print readers, while a keen eye on expenses would help achieve profitability.
As recently as late April, Kushner has said the company expects "a very good financial year this year."
Last year, the company had trouble securing financing to buy the Riverside Press-Enterprise. After delays in closing the deal, it turned to a high-interest-rate lender in Boston.
The former owner of the Riverside paper, A.H. Belo Corp., also required that Kushner put down a $1-million nonrefundable deposit and prove that his company was financially solvent.
As that deal came together in October, Kushner accused the former owners of Freedom Communications of fraudulently misstating its finances, leading him to significantly overpay for the company.
The allegations came in response to a lawsuit filed by the previous owners of Freedom Communications, who contended that the fraud claims are false and are being used as a pretext to avoid paying them more than $17 million held back from the original sale.
Late last year, Freedom also reached an agreement with William Lyon Homes under which the Newport Beach home builder gained the rights to acquire the Register's Santa Ana headquarters and surrounding land, according to a filing with the Orange County clerk-recorder. The agreement expires in December 2015, the filing says.