This much is certain: The bankruptcy of Orange County Register parent Freedom Communications Inc. ends one of the greatest runs by a family owned business here.
What’s less clear is the future of the Irvine-based media company started by Raymond Cyrus “R.C.” Hoiles in 1935 and run by his descendents up to now.
Freedom’s fate now rests with a group of 27 lenders after it filed for Chapter 11 reorganization last week, joining other newspaper and media companies in bankruptcy court.
The lenders, led by JPMorgan Chase & Co., are expected to name new directors and possibly executives. The eventual goal will be to sell Freedom, as a whole or in pieces.
Some speculate the lenders, with little experience running a media company, may keep Freedom’s existing management, with oversight from handpicked directors.
Interim Chief Executive Burl Osborne, who took over in July, could stay on after the company emerges from bankruptcy, according to a source familiar with the situation.
The company’s lenders may like his impartiality—Osborne was an independent Freedom director during the time of former Chief Executive Scott Flanders, who left two months ago to run Chicago-based Playboy Enterprises Inc.
A reorganization plan that calls for cutting Freedom’s debt from $771 million to $325 million is expected to take four to six months to work out, though some familiar with the situation say eight months is more realistic.
After that, the lenders-turned-owners face two options: bide their time and wait for a recovery to bolster Freedom’s value, or seek to sell off parts of the company, which also owns other newspapers, TV stations and Web sites.
For now, there are few identifiable media industry or private equity buyers for all of Freedom.
Piecemeal sales could be another story.
Beverly Hills-based private equity firm Platinum Equities LLC, working with media mogul David Black, has expressed interest in buying the Orange County Register, Freedom’s largest business.
Platinum principals and Black were said to have talked to Freedom executives about a possible buy of the Santa Ana-based paper in May.
Some think Black and Platinum could resurface after Freedom’s reorganization.
Black and Platinum teamed up to buy the San Diego Union-Tribune in May. They’re also rumored to be interested in buying the Los Angeles Times after owner Chicago-based Tribune Co. emerges from its own bankruptcy.
Others who once expressed interest in the Register now appear to be looking the other way.
William Dean Singleton, owner of Color-ado’s MediaNews Group Inc., joined with Virginia’s Gannett Co. in a $1.8 billion 2004 bid for the Register, Freedom’s Colorado newspaper, TV stations and other businesses.
Singleton told the Business Journal last week that he wouldn’t be able to put together a deal right now but wouldn’t rule out something later.
Larry Higby, the former chief executive of Lake Forest-based Apria Healthcare Group Inc. who emerged as a possible white knight suitor last year along with businessman George Argyros, declined to comment, saying he isn’t involved with the paper.
Former Register publisher N. Christian Anderson, who left in 2007, said he’d be interested in several of Freedom’s businesses “at the right price.”
A sale of the Register or other parts of Freedom could be necessitated by the company’s still sizable $325 million in expected debt after reorganization.
Freedom has estimated yearly revenue of about $650 million.
The company’s eight TV stations in West Palm Beach, Fla., Albany, N.Y., Lansing, Mich., and elsewhere could find buyers at good prices during the downturn, some speculate.
The Register and Freedom’s 32 other daily newspapers could be a tougher sell. They’ve been hit by the ongoing rise of the Internet and the overall downturn in ad spending amid the recession.
“Conventional wisdom is that some print revenue will come back with an improving economy, but the future is clearly tilting toward digital,” Anderson said.
Some of Freedom’s 70 or so weekly community newspapers are holding up better and could see interest from regional buyers.
Workout Plan
Freedom worked out details of its bankruptcy before last week’s filing. The company’s spent much of the past year and a half talking with lenders.
Earlier this year, Freedom got a reprieve until year’s end to meet credit terms it technically defaulted on in late 2008 when its debt reached more than five times its 12-month profits.
In recent weeks, a plan surfaced to trade ownership of most of the company to lenders in exchange for debt relief.
Despite the cost involved, Freedom opted for bankruptcy after a handful of lenders balked at plans to restructure outside court, according to a source familiar with the company.
The debt stems from five years ago when New York-based Blackstone Group LP and Rhode Island’s Providence Equity Partners LLC led a buyout spurred by some Hoiles family members who wanted to cash out.
The private equity firms put in $467 million for a 48% stake. The deal kept the remaining Hoiles in control with a 52% stake.
The private equity firms and the Hoiles are the big losers in the reorganization. They’ll see their stakes cut to a combined 2%, possibly with an option to buy back 10% of the company.
Blackstone is said to already have written its stake down to zero.
The lenders may allow the Hoiles to keep one seat on Freedom’s board, down from four, said a source familiar with the company.
Family members are said to be “devastated.”
For years, they’ve fought to keep Freedom in family hands. During better times, they turned away newspaper companies willing to pay big to acquire the company.
Timothy Hoiles, grandson of the founder, and others who cashed out in the private equity buyout now appear prescient.
Some hope to see the unique libertarian philosophy of the Register and other Freedom media carry on.
Freedom’s libertarian outlook could survive under the lenders, which aren’t expected to get heavily involved in daily operations of newspapers and other media.
The Hoiles tradition may have a tougher time living on in the event of a sale of the Register or the entire company.
