Dissident shareholder Harry H. Hoiles should have been offered full value for his Freedom Newspapers stock, rather than minority interest value, because he was the victim of a squeeze-out attempt by the majority owners of the publishing chain, an expert witness testified Wednesday during the trial of Hoiles' suit to dissolve the company.
The actions that the families of Hoiles' sister and late brother took around the time of the $74.1-million buy-out offer in September, 1981, amounted to an effort to compel Hoiles and his family to sell out, said Chester A. Gougis, a financial consultant for Duff & Phelps in Chicago.
Such compulsion is the hallmark of a squeeze-out, said Gougis, who was hired by Hoiles as an expert witness and was the first friendly witness Hoiles' attorneys have called in the five-week trial in Orange County Superior Court. The first six witnesses were hostile witnesses.
Hoiles' family and the families of Mary Jane Hoiles Hardie and the late Clarence H. Hoiles each own about a third of the Irvine-based media chain, which publishes the Orange County Register and 28 other dailies and owns five television stations.
In late 1980, after learning that he would not be elected to succeed his brother as chief executive officer, Harry Hoiles asked to withdraw from the company with his family's third of the assets.
Offer Was Less Than 12%
The other two family branches claimed that Hoiles was entitled only to the minority value of his stock, not the assets. Their $120-a-share offer amounted to less than 12% of the total appraised value of the company at the time.
Gougis said that offer was not fair because the majority also restricted its stock, changed the way the three-member executive committee was elected and agreed to a stock recapitalization plan.
All three actions had the effect of lowering the value of the Harry Hoiles family's stock, discouraging any outsider from buying it and eliminating Hoiles--or any buyer--from the company's chief operating committee, Gougis said.
The Hoiles family should have been offered full value for its stock--$320 a share, or a total of $214 million, he testified.
The defense, which began cross-examining Gougis in the afternoon and will continue today, expects to show that Gougis did not have enough information to form an opinion and that his assumptions about industry customs and practices are faulty.
Defense lawyers have said previously, for instance, that a minority shareholder is usually squeezed out by actions that cut off income. But Hoiles and his family have made more money in each of the last six years--$4.4 million in 1985 alone--than either of the other two branches, they said.