Buyout-Backed Busts: Freedom Communications

#7. Freedom Communications Inc.

Blackstone Group and Providence Equity Partners purchased the Irvine, Calif.-based newspaper company in 2004 in a deal that valued the company at $1.7 billion. We included this deal even though it is a minority investment because of the size of the company and firms’ equity checks, which were as large as its “top ten buyout” peers. The firms acquired a 40% stake for $460 million with very little debt. Blackstone Communications Partners I contributed $276 million in equity. Providence Equity Partners IV contributed an undisclosed amount.

What Went Wrong?
Blackstone and Providence did not take control of the company because its family owners wanted to retain control. The debt didn’t help. Blackstone and Providence’s investment allowed the company to retire some of its debt, leaving it with $900 million in debt, which the company began to chip away at. The company was planning to buy back the private equity firms’ stakes, but the deal fell apart when the credit crunch set in, according to the Wall Street Journal. That hurt coupled with the drastic Ebitda decline faced by most newspaper companies with the rise of new media. Freedom’s Ebitda declined by 75% over the past five years. The company filed for bankruptcy on September 1, 2009.

The Aftermath
Under the terms of a prearranged reorganization plan, the lenders will take over 98% of the company.