Freedom Bankruptcy Hits Blackstone

Owner of the Orange County Register gives the private equity giant a reality check.


When Irvine, California–based Freedom Communications, the owner of the Orange County Register and more than 30 daily newspapers, filed for bankruptcy last month, it marked a rare humiliation for one of the world’s savviest dealmakers: New York–based private equity giant Blackstone Group.

Back in 2003, Blackstone — teaming up with Rhode Island–based Providence Equity Partners — shelled out $450 million for a 40 percent stake in Freedom. Privately held by the founding Hoiles family, Freedom did the deal to allow some family members to cash out but still maintain family control of the media conglomerate.

That family control came at a cost. Freedom spurned a much higher bid — $1.8 billion for the whole company — from rival MediaNews Group and Gannett Co. And as a result of the Blackstone deal, Freedom took on $771 million of debt from a group of banks led by JPMorgan Chase & Co.

The heavy debt load, together with plummeting ad revenues, pushed Freedom into Chapter 11 last month. In its pre-arranged reorganization plan, Freedom’s current equity holders — Blackstone, Providence and the Hoiles family — will end up with just 2 percent of the company, plus warrants to buy an additional 10 percent. Lenders, headed by JPMorgan, will exchange their mountain of debt for 98 percent of the company and two new term loans totalling $325 million.

It is the first notable loss for Blackstone in media, an industry in which it has long been active. In 2002, together with Thomas Lee, Blackstone bought educational publisher Houghton Mifflin for $1.72 billion. It also bought a majority interest in Columbia House Co., a direct marketer of music, videos and DVD, from AOL Time Warner, for an undisclosed amount. Blackstone unloaded both investments in the boom years of 2006 and 2005, respectively.

Blackstone still holds stakes in Cumulus Media Partners, a vehicle that controls dozens of radio stations bought in 2006 with Thomas Lee and Bain Capital, and the Weather Channel, which it bought last year with Bain Capital and NBC Universal for around $3.5 billion.


Blackstone does not need to look far for consolation, though. William Dean Singleton, the outspoken CEO of MediaNews who tried unsuccessfully to bid for Freedom in 2003, is not as disappointed about losing to Blackstone on the bid as he was six years ago.

“The whole media industry has crashed,” Singleton says. His company, together with New York–based Hearst Corp., bought four newspapers from McClatchy Company in 2006 for $1 billion in cash. He is struggling to keep the Denver, Colorado–based MediaNews out of trouble. “Not many of the media deals since 2003 turned out to work well because of the unraveling of mainstream media, the restructure of industry and also the recession,” he says.

His old-time rival Blackstone would probably agree.