O.C. Register Owner Agrees to Sell Stake
Resolving a three-decade family war over power and money, Freedom Communications Inc. agreed Tuesday to allow outside investors for the first time to buy into the company that publishes the Orange County Register, providing funds that will allow disgruntled members of the clan to sell all or part of their shares.
The deal, which values Freedom at $1.72 billion, had been in the works since March 2002. Family members said it represented a middle ground between an outright sale and keeping the Irvine-based company, which also controls 64 other newspapers and eight television stations, a family affair.
If the family shareholders approve the transaction, it would leave descendants of R.C. Hoiles, the libertarian son of an Ohio farmer who bought the Register in 1935, in control of Freedom.
While ensuring that the free-market mantra of the editorial pages continues, the family is set to share the boardroom with representatives of two private buyout firms, Blackstone Group and Providence Equity Partners, which are putting up the cash to buy out dissident shareholders.
“For the family, this has been a civil war,” said Freedom’s chief executive, Alan J. Bell. “What you’re seeing today is nothing less than an armistice.”
The losers appear to be the media companies that had made offers to buy Freedom, only to see those bids rebuffed in the end. These included Gannett Co., the nation’s largest newspaper owner, and MediaNews Group, the owner of the Los Angeles Daily News and Long Beach Press-Telegram.
Community leaders praised Freedom’s move, saying they were pleased to see the Register remain in local hands, given that the paper has played such a major role in shaping the identity of the region.
“They have such a tradition,” said William Popejoy, a Newport Beach businessman who was brought in to clean up Orange County’s finances after its bankruptcy in the mid-1990s. “I don’t always agree with the political views that they put forth -- particularly libertarianism. However, I think it’s nice to have a legacy of the founder be carried out by the fourth generation.”
By giving family members a chance to cash out of the company, the agreement “gives all shareholders the choices they have been seeking,” said the leader of the dissidents, R.C. Hoiles’ grandson Timothy C. Hoiles, who owns 8.6% of Freedom. “This is a great outcome.”
Several members of the third generation, including Timothy Hoiles, 51, have wanted to sell out at a good price. Others, along with many members of the fourth generation, have wanted Freedom to carry on as a family-run enterprise. Last year, a group of fourth-generation descendants headed by St. Louis lawyer and accountant Thomas Bassett, 39, suggested bringing in the buyout firms to bridge the gap. That approach ultimately prevailed over more than two dozen competing offers.
End of a Family Feud
For Timothy Hoiles, it was especially heartening to settle a feud dating to the early 1980s, when his father, Harry Hoiles, was cut out of a significant management role at Freedom. Harry Hoiles responded by waging an unsuccessful five-year legal battle to break up the company or sell his shares at an open-market price, creating family divisions that deepened over time.
Among other things, Harry Hoiles maintained that Freedom was betraying the principles of its founder, who used his newspapers to oppose public schools as propagators of big government; argued that the military should be funded by voluntary contributions from citizens; and protested the internment of Japanese Americans during World War II as a clear violation of individual rights.
Even the company’s diversification into TV stations was contrary to R.C. Hoiles’ philosophy, Harry Hoiles contended, because the patriarch would never have participated in such a heavily regulated enterprise.
Freedom pushed on despite his complaints. The company was run by other branches of the family and managers who eventually stripped the ideology out of the Register’s news pages (as distinct from the editorial page) as it waged a bitter circulation war with the Los Angeles Times. The paper has won three Pulitzer Prizes, journalism’s highest honor, since 1985.
To be a serious, competitive newspaper in Southern California, “you have to be pretty mainstream,” said industry analyst John Morton, who was a consultant for Harry Hoiles’ opponents in the 1980s. “I think that’s what really ticked Harry off.”
Bell said he expected the 90 family shareholders to vote on the agreement late this year or early next year. After an initial opportunity to sell as many shares as they wished, family shareholders would be able to unload smaller amounts annually to the outside investment groups, sources said.
Although the family appeared to be on the edge of settling its differences Tuesday, it created a bitter new enemy by rejecting a higher offer for Freedom -- a joint bid from MediaNews and Gannett that valued the company at $1.83 billion.
Rejection Is a Setback
MediaNews Chief Executive William Dean Singleton, who controls eight newspapers in suburbs around Los Angeles, had wanted the Register to complete his circle. In an interview Tuesday, he denounced the Freedom bidding as a “rigged auction” designed only to determine the market price of the company, with the family never intending to actually relinquish control.
“They are naive beach boys who have invited the sharks over to swim with them,” Singleton said of the Hoileses, predicting that Blackstone and Providence would gradually acquire control of Freedom, “make it as efficient as they can, and then sell it” out from under the family.
Gannett officials declined to comment.
Despite the higher value of the bid that Singleton helped engineer -- $235 a share versus $220 from the family and its private-equity partners -- the MediaNews-Gannett offer faced formidable obstacles among the tradition-bound Hoileses.
A family faction headed by Freedom Chairman R. David Threshie had balked at voting its more than 40% stake for any outright sale. Other family members objected to selling to big newspaper companies that they regarded as impersonal, even though Freedom ranks as the nation’s 12th largest newspaper company.
Once the deal is complete, the Freedom board would have 13 members -- four from the family, four from the private equity firms, four independents and the CEO.
Family members who plan to hold on to their Freedom shares said they intended to reacquire the investment firms’ stakes in a few years, using funds from operations, a public offering or bank borrowings.
The Hoiles family’s decision to stay involved in the company runs counter to the trend among newspaper companies in recent decades. Families such as the Binghams of Louisville and the Chandlers of Los Angeles have wound up selling their companies outright to major media firms. Gannett bought the Louisville Courier-Journal and the Louisville Times, and Tribune Co. purchased Times Mirror Co.
As Freedom moves forward, it is bound to be reshaped. Insiders said they expected to sell off the company’s TV stations, a move long under consideration. Such asset sales, along with heavy cost cutting, will be needed to fund the high returns that leveraged-buyout firms such as Blackstone and Providence pay to their investors, sources noted.
On Tuesday, however, the focus was on the deal that seemed to sweep away decades of bad blood while giving the Register the opportunity to continue with its well-defined editorial philosophy. It is a voice that has staunchly advocated free-market ideas such as school vouchers, lower taxes and government deregulation, though it has not been afraid to take on the Republican Party when it believes the GOP has strayed.
“The goal from the beginning has always been fairness to everyone’s objectives -- no simple task in a multigenerational family not shy to express its views,” said Bell, the CEO. “This partnership we are announcing has managed to thread the needle in a stiff wind of often noisy contention.”
Times staff writer Scott Martelle contributed to this report.