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WALL STREET WEST – Buyout Firms May Loosen Grip Of Family on Newspaper Chain

Buyout Firms May Loosen Grip Of Family on Newspaper Chain

WALL STREET WEST

The deal earlier this month to sell Irvine-based Freedom Communications Inc. publisher of the Orange County Register was billed as a way to “enable continued control by descendents of founder R.C. Hoiles.”

But Hoiles’ descendants are giving up their hold on the company’s board and may see Freedom’s direction dominated by two East Coast private equity firms who are buying out disgruntled family shareholders.

“They may have control on paper, but they’re facing a new reality,” said Sam Yau, chairman of the Forum for Corporate Directors, a local corporate governance group. “The dynamic in the board room will change. Control will slip away from the family.”

Investment bankers and people familiar with the deal also said they see a loss of control for Chairman R. David Threshie Jr. and other family members who resisted selling the company to big media suitors such as MediaNews Group Inc. and Gannett Co. A joint offer from those two companies was 7 percent more per share than the winning bid.

Alan Bell, Freedom’s chief executive, called speculation the family has lost control “dead wrong.”

“The family is in control,” he said a point he said will be made clear in the proxy statement for the deal.

The deal with New York-based Blackstone Group LP and Providence Equity Partners Inc. of Rhode Island buys the family some time before the sale issue resurfaces in a few years, according to sources.

“If you’re a private equity firm, you’re going to want a liquidity event at some point down the road,” said Murray Rudin, general partner with the Irvine office of Los Angeles-based private equity firm Riordan Lewis & Haden.

Blackstone and Providence reportedly can buy more than 50 percent of Freedom’s shares. But anything beyond 49 percent stands to be in the form of non-voting shares, keeping the majority of voting stock in the family’s hands.

But the family’s voting control may not be all that it seems. For one thing, it’s not a given that family members will vote together on key issues. Some might be inclined to align more closely with the interests of Blackstone and Providence.

Threshie and other family members will have less power on the Freedom board, too just four of 13 seats.

And some family shareholders not aligned with Threshie could retain shares. Dissident shareholder David Hardie, a proponent of maximizing the value of Freedom stock, previously said he might sell just part of his 10 percent stake. Tim Hoiles, who led the call for a sale and owns 8.6 percent, could do the same.

Orange County Business Journal

Big Round

Strix Systems Inc., a Westlake Village-based maker of wireless communications equipment for business computer networks, raised $15 million in its second major venture capital round. Two new investors, San Diego-based Winward Ventures and San Francisco-based CMEA Ventures, co-led the round. Another new investor, Utah-based UV Partners participated, as well as return investors Palomar Ventures, based in Santa Monica, and Menlo Park-based El Dorado Ventures.

The company has raised $34 million its formation in 2000.

Strix originally aimed to sell wireless network equipment based on Bluetooth, a wireless communications technology that connects mobile devices such as personal digital assistants. But since then the company has switched to focus on building products using wireless fidelity, or Wi-Fi, as the communication technology. The company builds circuit boards and computer hardware that use Wi-Fi to connect office networks. It buys its chip components from Sunnyvale-based Atheros Communications Inc. and builds its products in facilities in Van Nuys and Mexico.

Michael Thuresson

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