Freedom Communications agrees to family-led partnership

LOS ANGELES (AP) — Freedom Communications Inc.'s decision to forge a partnership with two investment firms could merely delay an eventual change in ownership of the family-owned company.

In rejecting other bids, including a $1.83 billion cash offer from Gannett Co., publisher of USA Today, and Denver-based MediaNews Group Inc., Freedom opted to buy time so it could make the kinds of decisions that a bitter feud among the descendants of company founder R.C. Hoiles has made difficult.

Freedom's board agreed Oct. 14 to enter a partnership with Blackstone Communications Partners and Providence Equity Partners. The New York-based investment firms will buy out disgruntled shareholders and agreed to allow remaining family members to control the privately held company, which operates The Orange County Register, 27 other daily newspapers, 37 weeklies and eight television stations. Financial terms weren't disclosed.

"They will be helping us as partners," Freedom president and chief executive Alan Bell said. "They will be helping us make this business grow to the benefit of the family."

Some family members have been unhappy with Freedom's lackluster performance, prompting the board to consider several options to boost profits, including selling its broadcast stations, according to sources familiar with the matter. The sources spoke on condition of anonymity. The deal removes the pressure to rush such decisions just to raise money to buy out unhappy shareholders.

But equity investors such as Blackstone and Providence often invest in struggling companies, then sell them in a few years when they become more profitable. That is an inevitability the company now must plan for.

"They will not be with us forever," Bell said. "We can start planning now on how we want to cope with that. We're going to have to replace their investment. That's implicit in the deal."

Once the investment companies leave, two of the board's options would be to take the company public or find other investors.

Dean Singleton, vice chairman and chief executive officer of MediaNews Group, characterized the board's decision as a "deferred sale," saying he believes Freedom eventually will be forced to put itself back on the market.

For now, the deal preserves Freedom's heritage and the libertarian editorial philosophy that many family members were afraid would disappear if the company were sold to a media conglomerate.

"It has had a very particular editorial viewpoint, expressed on the editorial pages," said Michael Parks, director of the School of Journalism at the University of Southern California's Annenberg School for Communication. "It has also had a very strong editorial product that would be lost, I fear, if it were bought up by a very large company that would try and standardize."

Thomas Bassett, who led a group of family members representing 40 percent of the voting stock that did not want to sell the company, said, "From the very beginning of this process, our guiding principles have been to maximize individual choice for all of Freedom's shareholders, as well as to ensure that the company's unique philosophical heritage was protected."

Blackstone and Providence have agreed not to acquire more than 60 percent of Freedom and to accept non-voting stock if more than half of shareholders agree to sell, according to the sources.

That would mean decisions involving the future of the company could not be made solely by Blackstone and Providence, although both companies will be well-represented on Freedom's board, which now has 12 members.

The deal must be approved by a majority of shareholders at a special meeting that could come by year's end.