Keeping Harry Hoiles at Bay : Freedom Newspapers Families Frank in Discussing Rift

Glimpses of the divisions that split the families that own Freedom Newspapers Inc. continued to surface last week in the month-old trial over dissident shareholder Harry H. Hoiles’ attempt to dissolve the company.

After winning three important procedural rulings, the heads of the other two families have become increasingly frank in discussing their estrangement from Hoiles and the tactics they used to keep the family-owned media chain whole.

Yes, Mary Jane Hoiles Hardie said, she wanted to eliminate her brother from key management positions as long as he refused to join in a stock restriction agreement the other families had signed.

Yes, said R. David Threshie, son-in-law of the late Clarence Hoiles, he wanted the company to buy out his uncle at the lowest possible price if Harry insisted on leaving the fold.

And he wanted his uncle out of all the Irvine-based company’s partnerships and other ventures as well.

In the hallways during breaks in the trial, members of the Harry Hoiles family keep their distance from the other two families.

For Harry Hoiles, 71, the fight is one for the survival of principle and pride.

The families said they abide by the libertarian philosophy espoused by patriarch and company founder, R. C. Hoiles. And Harry maintains that those tenets include the right to control one’s own property--in this case, the third of the assets represented by each family’s stake in the company.

Rebuked six years ago in his attempt to become chief executive officer after the death of his brother, Harry decided to form his own company with his share of the family inheritance.

If Freedom Newspapers no longer could be run by unanimity--another libertarian tenet--then he could secede, he figured.

For the families of his sister and his late brother, the fight is for the survival of a thriving company.

They regard Harry as a late convert to the idea of unanimous rule.

In fact, Mary Jane Hardie testified last week, Harry told her in a telephone conversation in the early 1970s--when her family was on the outs with the other two branches--that he and Clarence controlled the corporation.

In the late 1970s, he altered the statement to say that the majority controls the company, she said.

Harry Hoiles alleged in his suit that a series of unfair actions taken by the other two families froze him out of management and destroyed the value of his stock. The majority families contend that they took reasonable steps to counter Hoiles’ threats to sell his stock to an outsider, possibly a corporate raider.

One of the actions that Harry says was unfair was the majority’s counterproposal late in 1981 to his plan to split up the company.

Using an outside appraiser’s $648.9-million value for the company, the majority offered Harry and his family $74.15 million, half in cash and half in a five-year note, for their stock in Freedom Newspapers.

The figure represented a discount of almost 65% from the appraised value of the family’s shares.

The majority alleged that Harry should get a discounted price because he held a minority, non-controlling interest in the company, especially because the majority had agreed on stock restrictions. That agreement is another of the actions that Harry has branded as unfair to him and his family.

Knowing that Harry really wanted newspaper properties, not cash, the counterproposal also included an offer to sell him several of the chain’s newspapers for the $37 million in cash. But the majority used a standard different from the appraiser’s to calculate the value of the newspapers. That standard put the company’s value at $770.6 million, so the $74.15 million offer meant that the stock of Harry’s family would have been discounted by 71%.

Threshie, publisher of Freedom Newspapers’ flagship, the Orange County Register, testified last week that he did not know why different appraising standards were used.

“I thought the offer was a fair offer, and I was looking at the offer as a whole,” he said.

Harry, however, contended that the values assigned to the individual newspapers in the counterproposal were grossly overvalued.

The Greenhow Publishing Co., an upstate New York owner of two small dailies and five weeklies, was bought in the mid-1970s for about $4 million and was offered to Hoiles for $14.4 million in the counterproposal. It was sold about two years later for $2.5 million.

Threshie maintained that the formula used created an overall average, leaving some papers overvalued and others undervalued.

Threshie said he has long been aware of pressures growing within the company to provide “frustrated” shareholders some means of selling their interest at a fair price without forfeiting the bulk of their assets.

But when asked by an attorney for Harry if he knew that Hoiles would be forfeiting the bulk of his assets under the counterproposal, Threshie said, “No, I don’t think I was aware of it.”