Freedom Plays the Family Feud

By: J.J. McGrath

Two opposing combatants in the fight for the hearts and minds of the Freedom Communications Inc. shareholders who will decide the company’s future ownership structure sometime after an Aug. 10-11 meeting agree on at least one thing: Freedom is “a jewel.”

Samuel C. Wolgemuth, Freedom CEO and president, and Christopher Shaw, a London-based investment banker who is seeking to broker a sale of the company, both used gemological metaphors in describing the family-owned media giant — and with good reason.

Founded in 1950 by the rock-ribbed libertarian R.C. Hoiles and headquartered in Irvine, Calif., Freedom has been valued at between $1 billion and $2 billion. With The Orange County Register in Santa Ana as its flagship, Freedom is ranked No. 12 in daily circulation among all U.S. newspaper companies and No. 4 among those privately held, according to the Newspaper Association of America’s Facts About Newspapers. Freedom owns 28 dailies, 37 weeklies, eight network-affiliated broadcast TV stations, and related Web operations.

By all accounts, this diamond’s luster clouded a bit in 2001. “Freedom lost $94 million before taxes and $64 million after taxes last year because of one-time losses on discontinued magazine and Internet investments,” the Register reported Thursday. “Operating income was $88 million.” Overall, Freedom had sales of about $760 million, according to several sources.

This year, Wolgemuth told E&P, the company has rebounded nicely, with “two record quarters” — in terms of year-over-year improvements — leading to a 41% boost in earnings before interest, taxes, depreciation, and amortization for the first half.

But these gains are too little too late for at least one of Freedom’s 50 adult shareholders — mostly relatives of R.C. Hoiles, who died in 1970. (There are also 31 child shareholders.) In breaking the story about Freedom’s possible restructuring, The Wall Street Journal on Wednesday quoted Tim Hoiles, chairman of the company’s audit committee and a grandson of R.C. Hoiles, as saying, “We’ve talked for over 20 years about the liquidity needs of the family and nothing’s been done.” As a result, Tim Hoiles — who owns 8.6% of the stock and 9.8% of the voting stock — is cooperating with Shaw in the investment banker’s “efforts to extract maximum value for shareholders,” which Shaw said would mean a sale of the company.

In a June 21 letter to shareholders about next month’s meeting, Freedom Chairman R. David Threshie acknowledged, “One liquidity option, and the one that maximizes share price, is to simply sell the company.” Ten other options — an initial public offering, an employee stock ownership program, and a buyback of stock among them — are expected to be explored at the meeting.

Pointing to the Hoiles family’s historical commitment to Freedom’s views on human liberty, Wolgemuth said that he does not think they will move to sell. Besides, he said, “Our shareholders can’t find an investment with a higher return and lower risk.”

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