By: Lucia Moses When Freedom Communications Inc. began flirting with a sale earlier this year to satisfy shareholders wanting to cash out, many company-watchers placed their bets on the bidder who offered the most money.
But the process hasn't been quite that straightforward. With final bids due in a few days, family shareholders of the Irvine, Calif.-based company (parent of
The Orange County Register in Santa Ana, Calif. and 27 other dailies) remain divided between selling to the highest bidder and recapitalizing to keep the company in the family.
In a sign of how close the contest is, shareholders went to court earlier this month over who may vote a block representing just 4% of the shares. Two of the five private equity firms offering to recapitalize have the support of an estimated 40% of the shares. They made non-financial presentations to shareholders in Dallas in August, along with Gannett Co. Inc., MediaNews Group Inc., Lee Enterprises, and Journal Register Co., according to people present, although final bidders may not be limited to that list. But if some shareholders are hesitant to sell the company to a public group, the short-term nature of private equity investments could soften them on the media companies.
"At the Dallas meetings, I think it was clear to people who were interested in a so-called recapitalization that it wouldn't last very long," said Joseph M. Alioto Sr., a lawyer for Tim Hoiles, the grandson of the company founder who holds 8.6% of the shares and who has led the large faction that wants out. "All of them have an exit strategy, and all of them within five years."
Final bids are due Sept. 22. A special committee of the board is expected to recommend one or more options to the board at its Oct. 1 meeting. The board then would make its recommendation to shareholders for a vote.
With the sale exploration process possibly near an end, shareholders also are buzzing about how they might preserve Freedom's libertarian philosophy post-sale, and a family presence on the board in the event of recapitalization. Even as he likened the family squabbling to a near "civil war," Freedom President and CEO Alan Bell said he's confident shareholders will cast a majority vote in favor of a solution. "The likelihood of the shareholders doing nothing is highly improbable, because they could open the door to a very serious lawsuit," he said. "Everyone understands there has to be liquidity. The question is, what's the way to do it that's fairest to all concerned?"
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