A Split in the Family

Facing vociferous demands to sell Freedom Communications Inc., corporate secretary and board member Richard A. Wallace urged shareholders in an e-mail last fall to consider the role that the Orange County Register parent long had played as a libertarian standard-bearer.

“I would hate to think that the descendant shareholders value dollars more than the ability to promote ideals that benefit all humanity,” wrote Wallace, who is married to a granddaughter of Raymond Cyrus “R.C.” Hoiles, an Ohio farmer’s son who bought the newspaper in 1935 as a mouthpiece for his stridently free-market views.

Another director, David C. Hardie, quickly fired back. In his own e-mail to stockholders, he dismissed the high-minded pleading of his relative by marriage to keep the company in family hands.

What Wallace called the “wonderful gift and honor” of owning Freedom had become “for some, an entitlement and crutch upon which they emotionally depend,” wrote Hardie, a grandson of Hoiles who, along with other disaffected members of the clan, wants to sell his Freedom shares for the best price possible and put the money to work elsewhere.

The essence of the electronic duel between Wallace and Hardie comes to a head today when Freedom’s directors meet to consider outsiders’ bids to purchase or invest in their closely held Irvine-based newspaper and television empire. The fractious board must decide which proposal or proposals will be put to a general vote of the 90 family-member shareholders in November.

In the sweep of such a high-stakes drama -- freighted with the emotion of long-nurtured grudges -- it’s difficult to predict whether the stakeholders will decide to sell the company outright or settle on a less extensive transaction that allows those who want to sell their shares to do so.

Yet the positions of various relatives are set out clearly in dozens of e-mails circulated among themselves over the last 18 months. The messages, disseminated by the company through a shareholder chat room and reviewed by The Times, open a small window into the family’s intensely private world. It is an arena in which third-generation Hoiles descendants are referred to as G-3s, the fourth generation as G-4s and so on, and where R.C. Hoiles still casts a long shadow.

Divided it may be, but this family keeps in touch -- from upbeat recaps of “high, positive-energy” meetings discussing sales and recapitalization options to terse comments such as “Stick it.”

Other e-mails show how the increasingly public squabble has wounded a clan unaccustomed to outside scrutiny.

“I’d like to take a moment to congratulate those shareholders who have gone to the press with personal agendas,” David D. Threshie, a member of the fourth generation and son of the current chairman, wrote after published reports appeared in January about his third-generation relatives’ campaign to force a sale.

Complaining that rumors were stifling productivity, encouraging corporate recruiters to raid the staff and embarrassing the company -- the Wall Street Journal had included the Hoileses in a year-end quiz about notorious families -- Threshie added, “Your efforts are going a long way to devalue the company and demoralize our associates.”

Tradition of Discord

In fact, such discord is a family tradition that predates the current company.

In the 1920s, R.C. Hoiles co-owned three Ohio newspapers with his brother Frank Hoiles but wasn’t satisfied. In what has become libertarian legend, the brothers dissolved their partnership because Frank refused to print R.C.’s attacks on the influence of labor unions.

R.C. Hoiles, on a mission to promote his philosophy of individual rights over government and collective enterprises, later bought the Santa Ana Register for $750,000, launching the company that today owns 65 papers and eight television stations.

The Register, which since the 1970s has confined its libertarianism to the editorial pages, has grown into the 36th-largest newspaper in the nation, with daily circulation of more than 300,000. Along the way, it has helped define Orange County’s identity and won three Pulitzer Prizes. Together with the 100,000-circulation Gazette of Colorado Springs, Colo., the Register is one of two jewels in Freedom’s crown.

“The two major newspapers are properties anyone would want,” said independent newspaper analyst John Morton. And the rest? “You sort of take the beer with the champagne.”

Several large newspaper companies, including USA Today publisher Gannett Co. and Los Angeles Daily News owner MediaNews Group Inc., have made bids for Freedom. In addition, private equity firms such as Kohlberg Kravis Roberts & Co., Spectrum Equity Investors and Madison Dearborn Partners have offered to buy out disgruntled shareholders.

Another offer, from Blackstone Group and Providence Equity Partners, was developed in conjunction with some fourth-generation Hoiles descendants with an eye toward keeping the family in control.

A special committee of non-family board directors has winnowed down the number of offers that will be presented to the full board today. Regardless of the final decision, a faction of the family finally will get an answer to a question they have been asking for more than 20 years: How much is their business worth?

R.C. Hoiles’ youngest son, Harry, first inquired about the value of the company after his older brother Clarence died in 1981. Rather than pass to Harry the chief executive’s title that Clarence had held, the family abolished the CEO position.

Power instead was vested in an “office of executive operations” that included Robert C. Hardie, who had married Harry’s sister, Mary Jane Hoiles; R. David Threshie, who was married to Harry’s niece Judith Ann Hoiles; and Robert Segal, who was unrelated to the Hoileses but had been a longtime Freedom publisher.

Denied a meaningful management role, Harry Hoiles sought to break up Freedom or be bought out at “a fair price.” Calling his relatives “thieves” and worse, he complained in an unsuccessful five-year lawsuit that they had offered him a fraction of his shares’ value on the open market -- the same chorus his son Tim and others in the family have taken up since Harry’s death in 1998.

“When you go against the people running this company, you don’t just have a disagreement,” said Tim Hoiles, 51, who owns 8.6% of Freedom’s stock and is on the company’s board. “Three months later, two years later, they’re coming back at you.

“In this family, it’s all personal and they never forget,” added Hoiles, who said that by criticizing Freedom management he has necessarily pitted himself against some of his cousins.

Opening the Door

One long-standing complaint of critics has been low profit at the Register, which put growth ahead of cost considerations in its circulation wars with the Los Angeles Times.

In 1989, the company hired Boston Consulting to study some of the issues Harry raised. The confidential report suggested pursuing a slower-growth, higher-profit strategy, as well as handing more responsibility to non-family executives.

Afterward, Freedom did add outsiders to its board. But other reforms outlined in the report for the most part were put off until last year. That was when, after seeing the company lose $300 million on ill-advised ventures into magazine publishing and the Internet, Tim Hoiles and other top shareholders forced the board to install a more activist chief executive.

The new CEO, Alan Bell, began cutting costs -- including shaving Freedom’s workforce from 7,500 to 7,000. Profit is up 15% this year.

Tim Hoiles said that at one point during the last year he turned down a company bid of $100 a share for his holdings. Later, he said, he told the board by telephone that he was willing to sell at $135 a share -- an offer that he said was not taken up.

Based on earlier presentations to stockholders, most expect the sealed bids unveiled to the board today to value Freedom at $210 to $230 a share, making Tim Hoiles’ stake worth upward of $140 million -- twice what he was offered before he forced the board to consider selling the company.

At that price, Freedom’s 7.8 million shares of stock would be worth about $1.7 billion overall and the entire company about $2 billion when its $350 million in debt is added.

On the board, Tim Hoiles is joined by David C. Hardie in pushing for an outright sale. Opposed are R. David Threshie, 71, the chairman and a former Register publisher; and Wallace, 64. Both have spent decades resisting an auction like the one now being thrust upon them. They and their wives declined to comment.

As the family dispute has rumbled toward its final act, Wallace, the company’s designated liaison to the libertarian Reason Foundation and other like-minded groups, has been exchanging long e-mails with other board members. In them, he has examined the shades of opinions held by the company founder and his offspring.

R.C. Hoiles defended user taxes on gasoline if the money went to roads, Wallace noted, and even voted for some water bonds because “all would benefit.”

Harry Hoiles, by contrast, didn’t believe in voting at all, convinced that power had corrupted politics absolutely.

The exchanges drew a pointed response from Steven R. Hardie, a 3-G shareholder, who declared, “I believe putting the libertarian philosophy first is a dead end.”

“As diverse as our shareholder body is,” Hardie went on, “we could fill editorial pages forever on our philosophical differences.”