OC Register: Interested buyers; cost-sharing with LA

By Rick Reiff
Orange County Business Journal Staff
Businessmen and philanthropists George Argyros and Larry Higby are interested in buying the Orange County Register, the Business Journal has learned.

Separately, the Register is said to be in talks with once-bitter rival the Los Angeles Times about combining some operations in a cost-sharing deal.

The Register also is considering a switch to tabloid-size paper to save on newsprint. And the Santa Ana-based daily paper recently announced a trial project to cut costs by outsourcing some layout and copy editing to India .

“We are having a lot of conversations that in the past in a different environment would have been inconceivable,” said Scott Flanders, chief executive of the Register’s parent company, Irvine-based Freedom Communications Inc.

Argyros, a real estate and investments billionaire, and Apria Healthcare Group Inc. Chief Executive Higby have talked with Flanders about their interest in buying the Register, according to sources familiar with the situation.

When asked about the talks, Flanders declined to comment.

Argyros and Higby weren’t reachable late last week.

The businessmen reportedly expressed a desire to keep the Register independent and locally owned.

The conversations were described as preliminary.

The overture from Argyros and Higby comes as the Register and almost all other daily newspapers are reeling from declining readership and a steep drop in advertising revenue, particularly in once-lucrative classified ads that have moved to the Internet.

In April, the Register announced its third round of layoffs within a year, cutting another 80 to 90 jobs, about 5% of its workforce. Publisher Terry Horne hasn’t ruled out more layoffs.

Earlier this year, the Register reported a 12% yearly drop in daily circulation. Horne recently said that advertising revenue had posted a double-digit percentage yearly drop. Other papers, including the Los Angeles Times, have reported similar, if not worse, declines.

Freedom Communications, which owns dailies, weekly community papers and television stations across the country, has revenue of more than $750 million a year, down from more than $800 million last year. The flagship Register accounts for about a third of its revenue and now a smaller share of profits.

In recent years, the Register’s earnings before interest, taxes, depreciation and amortization were estimated at about $70 million, though it is believed to be much lower now.

Privately held Freedom doesn’t disclose detailed financials.

The situation at the Register and elsewhere at Freedom has raised doubts that the heirs of company founder R.C. Hoiles, who own an estimated 55% of the company, will be able to engineer their hoped-for buyout of private equity investors next May.

That’s when Blackstone Group LP and Providence Equity Part-ners LLC can force the buyback of the roughly 45% stake they bought in 2004. The investment was part of a restructuring that enabled dissident heirs to cash out of the company.

But analysts and others have said it’s possible the private equity firms won’t exercise their “put rights” next May because they’re unlikely to recoup their investment, given the declining values of Freedom and other newspaper companies.

Valuing the Register would be tricky. The paper once was valued at about $700 million. Now it could be worth $150 million or less based on current results.

Argyros, chairman and chief executive of Costa Mesa-based real estate company Arnel & Affiliates and the money behind investment firm Westar Capital LLC, is one of the county’s best-known figures.

He’s a major benefactor of Chapman University , where schools and buildings are named after him, and served as George W. Bush’s ambassador to Spain earlier this decade.

A newspaper would fit in with his eclectic taste in investments, which through the years has included the Seattle Mariners baseball team, airline AirCal and doghouse maker Dogloo.

A longtime friend of Argyros, Higby was recruited by Argyros to Lake Forest-based Apria, a provider of healthcare to patients in their homes. Argyros was an investor and driving force behind the creation of Apria in the 1990s.

Higby recently negotiated the sale of Apria to Blackstone (the same company that’s invested in the Register) for $1.6 billion. The deal is expected to close by year’s end.

Higby brings newspaper knowledge. He was at the Los Angeles Times from the late 1980s to 1994, with stints as executive vice president of marketing and as president of the OC edition. He also was an executive with Unocal Corp. and PepsiCo Inc.

Meanwhile, the Register and Los Angeles Times are said to be exploring the combination of some operations.

The potential move would have some similarity to a joint operating agreement—an anti-trust exemption device little used in the past decade but permitted by Congress under the 1970 Newspaper Preservation Act.

But any move may not be as formal as a traditional joint operating agreement, sources said.

Under the plan, according to sources, the ownership and editorial operations of the Times and Register would remain separate. Printing, distribution and mailing would be combined. Whether advertising would be combined is in question, according to sources.

The potential move would be a dramatic change from the 1990s, when the two papers waged war for readers in OC. The battle faded with Chicago-based Tribune Co.’s 2000 buy of the Los Angeles Times and a shift to a more regional focus.

Joint operations are one of several moves the Register is looking at to deal with a newspaper slump that seems to be getting worse.

Register publisher Horne recently told trade publication Editor & Publisher that his paper is studying a switch to a tabloid size.

The potential move would cut the size of the paper by about half, taking it from a vertical, broadsheet that folds in the middle to a more compact size like those of the Register’s weekly community newspapers.

In May, Horne said in a speech that he wouldn’t be surprised if every paper in the country became a tabloid in five years, although the Register had no plans to switch at the time.

With the switch under consideration, Horne says he prefers a tabloid as it is easier on readers.

[Reiff is a former BJ staffer]