Freedom Chain Head Says Split Considered in 1970s

The chairman of Freedom Newspapers Inc. testified Wednesday that his family and the family of his late brother-in-law had considered splitting the media chain into thirds at least two years before dissident shareholder Harry H. Hoiles decided he wanted to leave the company.

The majority faction led by Chairman Robert C. Hardie now is fighting Hoiles’ attempt to obtain a third of the $1-billion corporation’s assets for his family.

But in his testimony Wednesday, Hardie indicated that nobody in the extended family, at least through the end of 1980, challenged the right of any of the three children of founder R.C. Hoiles to withdraw from the Irvine-based company with their family’s one-third share of the assets.

Hardie was the first witness in the Orange County Superior Court trial of a lawsuit brought by Harry Hoiles in 1982 to dissolve the closely held, family-owned company that operates the Orange County Register, 28 other dailies and five television stations.

Hoiles claims that the families of his sister, Mary Jane Hoiles Hardie, and of his late brother, Clarence H. Hoiles, froze him out of company management and took actions that destroyed the value of his family’s stock.

Claim Actions Reasonable

The other two branches of the family contend that Hoiles was angered when he realized he would not be elected to succeed his brother as chief executive officer. They claim their actions have not hurt the Hoiles family financially and that the actions were reasonable in light of his threats to sell out to outsiders.

Hardie, Mary Jane Hoiles’ husband, was called by the plaintiffs as a hostile witness in the non-jury trial.

He told Judge Leonard Goldstein that his family twice discussed withdrawing from Freedom Newspapers, either in 1977 or 1978. He said that he and his wife met with advisers twice on the matter and that one of his sons seemed eager to spin off their family’s assets, but that he never seriously considered leaving the company.

Hardie said he thought the families had settled past differences after they agreed to name D. Robert Segal as Freedom Newspapers’ president in the fall of 1978.

At a luncheon after the vote was taken, he said, he offered a toast to “love and understanding.”

But Clarence Hoiles took exception, said there was no love or understanding and announced that he wanted to split up the company, Hardie said. But Clarence quickly decided not to follow through with the idea, Hardie testified.

By 1980, the Hardie and Clarence Hoiles families had decided that Harry Hoiles was not the person to succeed Clarence, who had been ill. Clarence died Dec. 31, 1981.

Met With Family Members

Segal--who is not a member of any branch of the Hoiles family--then met with the sons and daughters of the heads of the three families and reported in a memo that few family members would support Harry Hoiles for the chief executive post.

When Hardie told Harry Hoiles in a meeting in September, 1980, that the Hardie family would not vote for him because he did not have “the talent or the personality for the job,” Harry decided he wanted to leave the company with his family’s share of the assets, Hardie testified.

In the next few months, Hardie said, company lawyers prepared reports outlining a division of assets and the tax consequences of various divisions.

“To my dismay, the parties were all taking this seriously,” he said.

Hardie also acknowledged that the operation of Freedom Newspapers was then and still is guided by libertarian principles, which include the idea that the majority cannot impose its will on the minority.

Harry Hoiles claims in his suit that the company always operated by unanimous consent on all major matters and that, as a consequence, a dissenting partner could withdraw from the company and take his full share of the assets with him.

Goldstein severely limited questioning about the libertarian philosophy, saying it means different things to different people and was irrelevant to the case except when it involved operational matters.

Hardie is expected to resume his testimony today.