Back in October, I calculated that the Blackstone/Providence firms had come to own about 80% of Freedom Communications, which owns the Orange County Register. The firms loaned the company about 40% of its equity just before the crash in newspapers stocks that began in 2004. Freedom Comm is a privately held company, so I based my calculations on the value of similar, but publicly traded, media companies.
A couple of people wrote me and scoffed at the idea.
But The Wall Street Journal just published an article basically agreeing with what I wrote more than 2 months ago, and including up-to-date numbers. But remember: You read it here first, in Blogland. Wall Street explains:
Weak credit markets have scuttled another deal, at least temporarily. Family-controlled Freedom Communications Inc., which owns the Orange County Register newspaper, has postponed a plan to buy out two minority partners, Blackstone Group LP and Providence Equity Partners.
Freedom was planning to spend more than $500 million to buy back the roughly 45% stake held by Blackstone and Providence, according to people familiar with the situation. Freedom had intended to borrow from General Electric Co.’s GE Capital and others to fund the purchase, and the deal was nearly complete a few weeks ago, those people say.
That means the company’s worth was estimated at about $1.2 billion, as of a few days ago. My estimate, back in my October article, was $1 billion. Pretty close for a little blogger like me out here with a computer and a Texas Instruments hand-held TI-1795+ calculator.
I estimated that Blackstone/Providence owned 80% of Freedom Comm, while Wall Street’s article says it’s 45%. But these are all just estimates unless a market sale is made. As I explained in a blog yesterday, media stocks just keep crashing. Here’s the Yahoo chart from yesterday’s blog, showing the values of three publicly traded media stocks over the past 5 years (GCI is Gannett, NYT is the New York Times, MNI is McClatchy):
The WSJ continues:
But negotiations were suspended amid the credit-market turmoil. Some banks were leery of lending money to Freedom, in part because of uncertainties facing the newspaper industry, and Freedom also faced higher borrowing costs, a person familiar with the situation said. The Hoiles family, which controls the majority stake in Freedom, decided to wait until the market calms down, this person said.
Spokesmen for Blackstone and Providence declined to comment.
As I wrote back in October:
On the other hand, if Freedom’s value keeps falling, there might not be much left for the Hoiles family to own, depending on how the deal was structured.
In previous blogs, I’ve criticized Freedom’s management. But really, there isn’t much anybody can do about this. Even the combined talents of Alfred P. Sloan, Jack Welch, and R.C. Hoiles — who grew existing companies to dominate their markets — might not be enough to rescue newspaper companies at a time when newspapers are obsolete.
If the family waits “until the market calms down,” there might not be any market left.
I’ll repeat my October prediction:
I suspect that the Hoiles family sees this going on and will want to cash out while they can get more from the company than a box of used staplers.
Only about 3% of family-owned companies survive to the third generation. The Hoiles family is now on its fifth generation. That’s quite an accomplishment. And as I’ve said, I’ve always admired the family and its devotion to freedom.
But media have changed so much that the only way the family can pull out some equity is to sell the company.
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