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Shareholder Seeks Knight Ridder Sale, But Who is Buying?
By
SETH SUTEL, AP Business Writer
Published: November 02, 2005
NEW YORK (AP) Money manager Bruce Sherman, a 19% shareholder in Knight Ridder Inc., wants the newspaper publisher to put itself up for sale. But with newspaper stocks so far out of favor with investors this year, the question arises: Who might be interested in buying it?
Sherman, who heads up the Naples, Fla.-based investment firm Private Capital Management, fired a shot across Knight Ridder's bow on Tuesday, sending a letter to Knight Ridder's directors demanding that they "aggressively pursue" a sale or face dire consequences, including a drive to shake up the board or management.
Sherman has been a longtime investor in newspaper stocks, accumulating an average position of nearly 10% in nine leading newspaper companies, according to a recent research report by Morgan Stanley analyst Doug Arthur. Until now, however, Sherman has remained quiet about his intentions as he added to his positions in major publishers like Gannett Co., New York Times Co. and McClatchy Co.
Being bullish on newspapers is unusual these days, going contrary to the prevailing wisdom on Wall Street that the business is in overall decline as more advertisers and readers move to the Internet. To make matters worse, newsprint prices are rising and circulation has been falling steadily for years.
As a result, newspaper stocks have suffered badly over the past year. Industry bellwether Gannett is down about 20% so far in 2005; The New York Times is down 31%; Tribune Co. is off 23%; and, until Tuesday's announcement, Knight Ridder's shares were down 20 percent.
Which leads some to wonder -- with newspaper stocks so unpopular now, who would be interested in buying Knight Ridder?
"We're all sitting here scratching our heads," said Lauren Rich Fine, a publishing analyst at Merrill Lynch. "Most people are pretty skeptical, not knowing who the buyer is."
However, other analysts were more sanguine. Both Morgan Stanley and Deutsche Bank upgraded Knight Ridder's shares Wednesday, citing the public pressure on Knight Ridder. Arthur said in a note to investors he believed newspaper stocks were undervalued and that the "market has been waiting for an external catalyst to 'shock' the stocks out of their yearlong stupor."
Deutsche Bank analyst Paul Ginocchio said in a note that he expected Gannett, Tribune and private equity investors to be interested. He said the level of the stock suggested a roughly 50-50 likelihood of a sale.
Fine, however, said that the most logical industry buyer, Gannett, might not come through since it has a newly installed CEO and its recent acquisitions have been outside of the daily newspaper area. Plus, Gannett tends to concentrate on smaller market papers apart from its national daily, the top-selling USA Today.
Even more troubling to a potential buyer, perhaps, is the fact that several of the Knight Ridder markets in have been in serious decline -- one of the reasons behind Knight Ridder's special set of difficulties.
In September Knight Ridder warned that its third-quarter earnings would slump 20% due largely to weak advertising in three of its largest markets, Philadelphia, Fort Worth, Texas, and Kansas City. Mo. A week later, Knight Ridder said it would slash 100 jobs at its two Philadelphia newspapers, The Philadelphia Inquirer and the Philadelphia Daily News.
While the shares of many newspaper companies have been suffering over the past year, Knight Ridder has also had the bad luck to be owning mainly larger-market newspapers, which have fared worse than smaller, local-market papers recently.
What's more, Knight Ridder is one of the few big newspaper companies, along with Gannett and Tribune, that does not have a separate class of stock allowing families such as the Grahams at The Washington Post Co., the Bancrofts at Dow Jones & Co., or the Sulzbergers at The New York Times to exercise voting control.
Knight Ridder could also be close to a management succession. CEO Tony Ridder, whose great-grandfather owned the first newspaper in what eventually became the Ridder group, turned 65 in September. The two leading candidates to succeed him are senior vice presidents Art Brisbane and Hilary Schneider.
After surging nearly 9% on Tuesday after Sherman's broadside became public, Knight Ridder's shares rose just $1.08, or 1.9%, to close at $59.08 Wednesday on the New York Stock Exchange. Other newspaper publishers also rose.
Sherman said in his letter that he expected other major shareholders of Knight Ridder to agree that the company's shares were significantly undervalued and to support efforts to sell the company. However, the next largest shareholders after Private Capital -- Southeastern Asset Management Inc., Harris Associates LP and Eubel Brady & Suttman Asset Management Inc. -- all declined to comment.
Both Sherman and Knight Ridder declined to comment for this story.
___
On the Net:
http://www.kri.com
http://www.private-cap.com
SETH SUTEL, AP Business Writer
(letters@editorandpublisher.com)
Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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