Freedom Deal Is Positive for Newspapers

By: Lucia Moses To the disappointment of would-be buyers and brokers of newspapers, the sale of Freedom Communications Inc. turned out to be the non-event of the year. But considering the deal's symbolic implications -- about the inherent value of newspapers and, within that, of family ownership -- the news sent a positive message as well.

Along with numerous media companies who participated in the seven-month auction process, Freedom drew unprecedented interest from private equity firms, and the board ultimately signed an agreement to work with two such firms to give liquidity to shareholders wanting to cash out. "It's certainly unusual to see private equity firms investing in newspapers, and I think that's a good thing for the industry," said Kevin Lavalla, managing director at the Jordan, Edmiston Group Inc. in New York. With the exceptions of Liberty Group Publishing and New York's Village Voice Media, few investment firms have bought into newspaper companies; usually they balk at the prices.

"The multiples are pretty tough to make good financial deals on," said broker John T. Cribb of Cribb & Associates, in Bozeman, Mont. "These players typically like four, six, eight times EBITDA [earnings before interest, taxes, depreciation, and amortization]."

But observers note that such firms' interest in newspapers, with their steady returns, has never been higher, and believe the Freedom case could spur even more. "It does show some of these private equity investors are awakening to the value of media properties," said the analyst John Morton, president of Morton Research Inc., Silver Spring, Md. "Clearly this deal created interest. They've seen media values keep going up. They might see an opportunity to cash in for a big return."

The deal for the Irvine, Calif.-based parent of the Santa Ana, Calif., Orange County Register, plus 27 other dailies and eight TV stations, valued at $1.72 billion, represents a "family-haircut value," as one stock analyst put it, an attempt to satisfy shareholders who plan to stay in as well as sell. But the spurned offers for the big newspaper company -- Gannett Co. Inc. and MediaNews Group Inc. together bid $1.83 billion, representing 14 times cash flow -- can be taken as something of an ego boost for an industry suffering from circulation woes and ad bumpiness these days.

It's true that the Freedom recap plan (still to be approved by shareholders) would add to its debt burden. And it could lead to another sale exploration process when the investors decide to cash out, which typically happens in less than 10 years. Even so, its decision to forego a higher offer and keep the company in the family (descendants of libertarian founder R.C. Hoiles) gave cheer to other family newspaper operators who followed the drama over the past year.

Dave Lord, president of Pioneer Newspapers in Seattle, said that for owners who had assumed selling was the only option if some of their relatives wanted out, the Freedom decision shows "that they can get creative in their recapitalization efforts to preserve family ownership."

While people looking to sell still look at many factors in choosing the right buyer, said fourth-generation family newspaper publisher Irving E. "Chip" Rogers III of the Lawrence, Mass., Eagle-Tribune, "maybe this will start a trend."