Freedom Newspapers Caught in Feud

In the mid-1920s, years before Raymond Cyrus Hoiles moved West and bought the Orange County Register, his increasing philosophical differences with an older brother over the operation of their three Ohio newspapers led to a bitter break-up of the partnership and a decade-long estrangement between the two.

More than half a century later, the scene is being played out again--at much higher stakes--as the heirs of R. C. Hoiles are locked in a battle over Freedom Newspapers Inc., the family-owned corporation that owns the flagship Register, 28 smaller dailies and five television stations.

The battle for control or dissolution of the profitable chain pits the family of Harry Hoiles against the families of his sister, Mary Jane Hoiles Hardie, and his late brother, Clarence. The three are R. C. Hoiles’ children, and their families each own about a third of the privately held company.

The feud mirrors the internecine warfare that has afflicted other large media chains. Once such a fight begins, analysts say, family control of the newspaper seems destined to end.

At the root of the Freedom Newspaper fight is the unorthodox libertarian philosophy of the late R. C. Hoiles, a philosophy that extols self-reliance and voluntary action and abhors government interference.

Harry, 69 and the youngest of Hoiles’ sons, both looks and writes more like his father each year, those close to him say. He charges that other family members have abandoned R. C.’s brand of libertarianism.

Hoiles says he wants ownership of the chain--or a reasonable price for his third of it--so that he can continue using newspapers to keep his version of the libertarian flame burning.

Three weeks ago, Hoiles made his third bid to buy the company. He valued Freedom at $1.01 billion and offered either to buy the other family members’ shares for a total of $682.5 million or to sell them his shares for $330 million. Hoiles still is waiting for an answer, but in rejecting his previous offers Freedom’s majority owners said they will not sell to Harry Hoiles and his family at any price.

“There’s a lot more family jealousy (at play) that makes the price irrelevant,” said analyst Bruce Thorp of John Morton & Co.

Even so, establishing a value for Freedom Newspapers is important to Harry Hoiles. In the absence of a sale, he is pressing a lawsuit to dissolve the corporation. Hoiles wants an Orange County Superior Court judge to end the family squabbles by dividing Freedom’s assets equally among the shareholders. The trial is scheduled to start April 7.

Some Wall Street analysts believe that even if Harry Hoiles is blocked, the fate of Freedom Newspapers eventually will be that of most other large, family-owned newspapers. As stock is dispersed among more and more offspring in the third and fourth generations, they say, shareholders who have no control individually will tend to sell out to the highest bidder.

For now, the internal dissension has brought to light some previously secret financial information about the closely held company.

In court documents filed in support of his dissolution suit, for example, Harry Hoiles revealed that in 1981, a few months before he died, that Clarence Hoiles valued Freedom Newspapers at $834.9 million in a short-lived proposal to give Harry a one-third interest in the Register and eight of the chain’s other newspapers.

Other family members, the documents say, convinced Clarence that Harry should be considered only a minority shareholder and that he should only get a discounted price of $74.1 million in any family purchase of his shares.

Freedom’s financial performance record also has seeped out. Freedom’s revenues hit $295.8 million last year, a company source told The Times. That is 61.4% higher than the gross revenues of $181.5 million that Clarence Hoiles cited in his 1981 sale offer to his brother. Forbes magazine reported the corporation’s net income last year at $26.4 million. The Register, with 292,583 daily subscribers, represents about half of Freedom’s revenues and cash flow, according to company officials.

In rejecting the 1981 offer to buy him out for a discount, Harry Hoiles argued that assets should be equally divided.

Wants Distinction

But Robert C. Hardie, Freedom Newspapers’ chairman and Hoiles’ brother-in-law, argues that there is a distinction should be drawn between owning a corporation’s stock and owning its assets. A corporation, he says, “is a voluntary association. You don’t have to become part of it. A share of stock is not equivalent to a share of assets.”

Industry analysts have mixed views on whether Harry Hoiles would find it worthwhile to sell his stake in the corporation to outsiders.

In a sale, legal fees, filing fees and other costs “could equal a quarter or more of the proceeds,” said analyst John Morton, who has been hired by the corporation’s majority shareholders as an expert witness in the coming trial.

In addition, Morton maintains that Hoiles’ stock would bring only a discounted price because it represents a minority share that was made less marketable when Freedom’s majority shareholders signed a stock transfer restriction several years ago to inhibit outside sales. The restriction doesn’t apply to Harry Hoiles’ family, which refused to sign.

If Hoiles is looking to sell to a media conglomerate, he might encounter some difficulties because the stock would not give a buyer control and because of restrictions on the sale of remaining shares to outsiders.

Any company buying Hoiles’ shares would want to gain control of the corporation in a “reasonable period of time--five to 10 years,” said J. Kendrick Noble Jr., a Paine Webber media analyst in New York.

Ultimately, various analysts said, outside ownership of a third of the company would add to the pressures on family members to sell out.

The Hoiles feud to some extent resembles family fights that beset the Minneapolis Star-Tribune and the Louisville Courier-Journal and that already have prompted sale of the Detroit News and the Des Moines Register to the Gannett chain.

But at least in Louisville, Ky., where Sallie Bingham is trying to sell her shares to the highest bidder outside the family, the Binghams still buy Christmas presents for each other. “We don’t really get together,” she said, “everybody just drops off the presents at each others’ houses.”

For the two factions of the Hoiles families, there is no communication at all except “at the (twice yearly) board meetings,” Harry Hoiles said.

Branches of the Hoiles family have never been close, emotionally or geographically.

“There were only few occasions when the entire family got together,” Harry Hoiles said of their adult lives. Hardie concurred: “I never really knew Harry very well. We met at state occasions--weddings, funerals and such.”

What held the family together was their crusty, domineering, doctrinaire father, whose strident editorials railed against Herbert Hoover as being too left-wing and against all taxes as “the theft of wages.”

R. C. Hoiles instilled his libertarian philosophy in his children and for nearly a decade after his death at 91 in 1970, the Register and other Freedom newspapers lived by his set of rules, which, for instance, required reporters to refer to public schools as “tax-supported” schools.

The elder Hoiles apparently overwhelmed his children, especially the sons who were to follow in his footsteps. “They had leaned on him for so many years that men who were 50 years old were saying, ‘Yes, daddy,’ whenever he wanted something done,” said former Register editor Jim Dean, who joined Freedom in 1954 and eventually ran the Register for 18 years before his retirement in 1980.

When R. C. Hoiles purchased the Register--then called the Santa Ana Register--in 1935, he already owned a paper in Ohio, the Bucyrus Telegraph-Forum. He also bought the Clovis, N.M., Journal in 1935 and in 1936 purchased the Daily News of Pampa, Tex.

After World War II, the family empire began to expand. The first post-war purchases were the Appeal-Democrat in Marysville, Calif., and the Gazette Telegraph in Colorado Springs, Colo.

Mary Jane Hoiles had married Robert Hardie and they moved to Marysville, where her husband became publisher, while Harry Hoiles and his family were dispatched to Colorado Springs to publish the Gazette Telegraph. Clarence remained at the Register as his father’s right-hand man.

When Freedom Newspapers Inc. was formed as the parent company for the chain in 1950, Harry Hoiles said, family tensions already were evident.

Hoiles said he and his sister had never really gotten along and that his father and Clarence had begun criticizing her husband’s management in Marysville and were sending him letters that urged better financial results and compared his operation unfavorably to Harry’s.

‘Constructive Advice’

Hardie acknowledged receiving the letters of criticism, but said he viewed them as constructive advice while he was gaining experience in the newspaper business. He said he also received favorable reviews from his father-in-law and from Clarence Hoiles.

Harry Hoiles said his sister began talking in the 1970s about dividing the company’s assets among the three families, but Hardie said his family never wanted to break up the corporation.

“We thought it ridiculous to kill the goose that laid the golden egg,” Hardie said.

After R. C. Hoiles’ death, operation of Freedom became more structured, with regular board meetings and the appointment of corporate officers from among the family.

The family feud blew up when Clarence became ill with angina in 1975 and Harry was asked to return to Santa Ana to help out. The circumstances surrounding his move are a major aspect of the lawsuit to dissolve the corporation.

Essentially, Harry claims he was asked by his brother and Hardie to come to Santa Ana with the understanding that he would take over the company if anything happened to Clarence. Hardie denies that there was any such commitment.

Harry Hoiles took up residence in Santa Ana in the fall of 1975 as co-publisher, with Clarence, of the Register.

Three years later, recognizing the need for more professional help to manage the growing corporation, Harry Hoiles stepped down as corporate president and the family named D. Robert Segal, who still serves in that post, to replace him. A longtime Freedom employee who was publisher of the chain’s Gastonia (N.C.) Gazette when he was elevated, Segal was the first non-family member to run the company. The move to bring in an outsider provoked a tense family scene at a Santa Ana restaurant.

“Clarence blew up at Bob and Jane (Hardie) at lunch over Bob being so happy that Segal was coming in,” Harry Hoiles said. Clarence and Harry thought R. David Threshie, Clarence’s son-in-law and then the Register’s assistant general manager, should get the job, thus keeping it in the family.

Hoiles said the family operated at that time by unanimous vote and that Segal got the job as a compromise candidate because Hardie did not want the balance of power to tip to the Clarence Hoiles family and refused to vote for Threshie.

Hardie, however, said his brothers-in-law thought highly of Segal and wanted him in the post as well.

But he recalled that when he offered a toast at the meeting’s end to “love and understanding,” Clarence shouted back, “There is no love and understanding.”

It was at that meeting, both Hardie and Harry Hoiles said, that Clarence told corporate lawyer John R. Stahr to “make preparations for splitting up the company.”

Harry Hoiles said his brother backed off because he realized that he would not get control of the Register in any equal distribution of the company’s assets. Hardie said that Clarence simply called him the next day, apologized for his outburst and said he had concluded that splitting up the company was not possible. Neither Hardie nor his wife could recall why Clarence thought it impossible.

Still, the idea that each family was entitled to a third of the assets began to intrigue Harry Hoiles--especially in late 1980 when the Hardies told him that they would not support him for chairman and chief executive officer if his brother died.

By then, Hoiles had been arguing heatedly in executive meetings that the Register and the corporation under Segal was straying from his father’s tenets.

Segal and Threshie--who was named the Register’s publisher in 1979--generally are credited with pumping more money into the Santa Ana paper’s historically low-budget editorial product, toning down its strident libertarianism and positioning Freedom for higher profits and acquisitions in the 1980s.

Other family members feared that, under Harry’s control, the company would revert to slow growth and see a return of old-line executives who were axed by Segal and Threshie and that the flagship Register would lapse back into its old habits.

The ultimate separation came for Harry Hoiles in an emotional board meeting on March 2, 1981, when the other families voted to abolish the position of chief executive officer and replace it with a three-member office of the chief executive. Each family head would be a member. Harry Hoiles rejected the plan and the other families obligingly voted Segal onto the triumvirate in his place.

“Clarence accused me of wanting to be a dictator,” he said. “It was a very emotional experience. They not only destroyed the reason for my move (to Santa Ana) but essentially fired me” as a corporate officer.

Proposed Split-Up

After discussing the situation with his brother, Hoiles in June, 1981, submitted two plans to split up the company.

In response to Harry’s proposals, Clarence Hoiles, writing for the company, made the offer to buy his brother’s family out for the discounted price of $74.1 million. At the same time, Clarence said Harry could buy the Colorado Springs paper for himself, but the price would be $73.3 million--only $800,000 less than Harry had been offered for his entire stake in the company.

Before much else could occur, Clarence Hoiles’ health began rapidly deteriorating. He died on Dec. 31, 1981.

In early April, 1982, Freedom’s board, over Harry Hoiles family’s objections, agreed to a recapitalization plan to allow the company to redeem the non-voting shares of heirs to pay estate and inheritance taxes.

But the stock restriction and the recapitalization plan, Harry Hoiles contends, illegally devalued his family’s stock, making it more difficult to sell. He cited the two actions as the basis for the suit he filed to dissolve Freedom Newspapers.