Gazette's owner exits bankruptcy

Freedom Communications, parent company of The Gazette, announced Friday that it has emerged from U.S. Bankruptcy Court protection relieved of $450 million in debt and with new ownership headed by three hedge funds. In so doing, Freedom also ended 75 years of family ownership of a company that provided a unique voice in American journalism.

The three funds — Alden Global Capital, Angelo Gordon and Luxor Capital Group — will own a majority of Irvine, Calif.-based Freedom, but do not have seats on the new board; a group of lenders headed by JPMorgan Chase will own the rest. A breakdown of their relative positions was not immediately available.

“This is an exciting time for The Gazette and Freedom, our parent company. We look forward to making The Gazette an even stronger community partner to ensure a successful future,” said Steve Pope, president and publisher of The Gazette.

Unsecured creditors will divide at least $32.2 million. Freedom will go forward with $325 million in debt, but Freedom Chief Executive Burl Osborne said the company is well-positioned to thrive as the nation’s economy continues to expand and that the company has no plans to sell The Gazette.

“We’re out, and that’s great,” Osborne said. “A great umbrella of uncertainty is lifted. It means Freedom is a company. It’s a viable company, and we’ll be a strong company and have the wherewithal to be successful in the near and far future.”

Osborne also said he had no plans to “replicate what we have had to do in the past two years, and wholesale layoffs are not on my agenda. We believe that the worst is over.”

Freedom’s founding Hoiles family no longer has an interest in the company, ending more than 75 years of ownership that started with Raymond Cyrus “R.C.” Hoiles, who purchased the Santa Ana, Calif., Register in 1935 as a platform for his libertarian views on individual freedom and limited government. Hoiles purchased the Gazette Telegraph in 1946. The paper dropped “Telegraph” from its name in 1997.

Osborne said he has seen no indication the company would move away from its libertarian editorial voice on its opinion pages. However, he said it would be left to individual properties to reflect the values of their communities.
Freedom’s financial woes date to 2004 when the company borrowed $1 billion to buy out family members who wanted to cash in their shares and to cover $332 million in existing debt and the deal’s transaction costs. The family retained control but two investment firms, Blackstone Group and Providence Equity Partners, came in as minority owners.

The timing, however, was bad. The newspapers faced declining circulation and advertising revenue and increased competition from the Internet and new media.

When the recession hit, the debt sank them. Freedom filed for bankruptcy reorganization on Sept. 1, one of 13 newspaper companies that have sought Chapter 11 protection.

In addition to The Gazette, Freedom owns 26 daily newspapers including the flagship Orange County Register, more than 70 weeklies and other publications and eight television stations throughout the country.

A new Freedom board made up of five independent directors and Osborne has been installed.

However, Osborne soon will be stepping down, the company said. He took over in June as interim CEO after former CEO Scott Flanders left for Playboy Enterprises. Freedom officials said a search for a new chief executive is underway. Osborne, who said he hopes a replacement will be selected in weeks and not months, will remain on as a senior adviser and board member.

Mark McEachen, who has been chief financial officer and served as chief restructuring officer, has been promoted to chief operating officer and will be responsible for the company’s newspaper, broadcast and interactive operations. He will also retain the title of CFO.

It’s unclear what the investment firms have in mind for the company. Over the last year a group of  hedge funds that specialize in distressed properties have scooped up newspaper debt at bargain prices in a handful of bankrupt companies in a bet that the industry will rebound.

Alden joined with New York-based Angelo Gordon and some other investors this week in a successful $135 million bid for the Philadelphia Newspapers, which filed for bankruptcy last year.

McEachen said the funds did not buy Freedom just to flip it.

“These hedge funds could have invested in any other media company. They chose our company, our properties and our associates,” he said. “They must see value.”