Who’s Buying?   

Sorting out the potential suitors of Freedom Communications’ properties

Freedom Communications Inc. is a classic example of what happens to a family-controlled newspaper company after three or four generations of ownership: Dissension within is resolved by selling the business.

Usually the impetus for selling comes from the younger generations, who often feel that the return they're getting in dividends does not reflect the true value of their holdings because of mismanagement by the older generations. Or (think the Courier-Journal in Louisville) the patriarch of the family becomes so weary over bickering among his offspring that he in effect throws up his hands and sells the company.

Freedom Communications has been around this horn before. Almost 20 years ago, the head of one of the Hoiles family's three branches, the late Harry Hoiles (son of founder R.C. Hoiles) tried to break up the company. His main complaint was that the company's newspapers were insufficiently adhering to R.C. Hoiles' libertarian principles. The other two branches united and successfully fended off Harry Hoiles' efforts (disclosure: I served as a consultant to law firms representing the united branches).

Now the effort to end family control comes from Harry Hoiles' son, Tim, who has made clear his desire to cash out and has won supporters among the third and fourth generations.

The battle has been under way for several months, and for a time members of the older generations tried to find a way to allow Tim Hoiles and his followers to take their money out while leaving the company under family control. These efforts were apparently so unsuccessful that some members of the two family branches that had earlier resisted Harry Hoiles have joined his son to make a majority favoring a sale.

The likely reason no solution was found: price. Those wanting to cash out as minority shareholders doubtless realized they would get more from the sale of the company than from any negotiated price for their shares. The difference could be 30 percent or more.

How attractive an acquisition is Freedom? How much might it be worth, and who might buy it? There is a risk of being overtaken by events because of magazine deadlines, but I will note some possibilities. Gannett has been frequently mentioned as a potential buyer, because of its immense size and aggressive strategy. An antitrust conflict--Freedom owns dailies near Phoenix, where Gannett owns the Arizona Republic--could be resolved by a spin-off.

Beyond Gannett almost any large newspaper company would be interested, because rarely does a company owning 28 dailies (two of particular interest) and eight television stations become available. The two jewels are the Orange County Register (daily circulation 300,888) and the Gazette in Colorado Springs (98,275).

There have been reports the Hoiles family might sell the company piecemeal, in the hope that the parts might be worth more than the whole. This would greatly enlarge the pool of potential suitors. MediaNews, for example, would want to own the Orange County Register, which would fill a gap in its string of dailies surrounding the Los Angeles Times. (The Justice Department probably would not object, because of the Times' dominance.)

Moreover, assuming the Federal Communications Commission eliminates the ban on common ownership of newspapers and television stations in the same market, plenty of newspaper companies would be interested in Freedom's eight television stations. Companies that own papers where Freedom has stations include Cox Enterprises (West Palm Beach), Belo (New Bedford-Providence, Rhode Island), Advance Publications/ Newhouse (Kalamazoo, Michigan), Hearst Newspapers (Schenectady-Albany, New York, and Beaumont, Texas), Gannett (Lansing, Michigan), Dow Jones & Co. (Medford, Oregon) and Wehco Media (Chattanooga, Tennessee).

As for what Freedom is worth, I can imagine, based on prevailing acquisition criteria, the company fetching $1.5 to $2 billion before debt. Some financial information about the company has trickled out in recent weeks, indicating that total revenue last year was $784 million, with earnings before noncash charges, interest and taxes of either $169 million (apparently before corporate overhead, which in the event of a takeover would largely disappear) or of $147 million (apparently after corporate overhead).

If Freedom does cease to be family-controlled, it would be another large step in the continuing concentration of newspaper ownership. Disagreement within the Hoiles family may not have reached the level attributed to a family owning a largish Midwestern daily back in the 1970s, where it was said (no doubt apocryphally) that at the annual family picnic each branch brought its own taster. But it is enough.