Goldman Sachs Concerned McClatchy Buyback Program Reduces Liquidity

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By: Jennifer Saba

On Monday, McClatchy announced a share repurchase program — the first time in the company’s history — that allows for the acquisition of $200 million of Class A common stock. But a note released today by Goldman Sachs raises a red flag.

While there are many encouraging factors related to the latest move, including ?management’s conviction that the shares are attractively valued,? said the note, there is concern that the program will reduce ?float? by as much as 15%.

?We continue to like [McClatchy’s] strong management, growth markets, and ability to control costs, but our enthusiasm is tempered by the challenging ad environment and a valuation that seems fair,? said the note.

At current share price levels, Goldman Sachs estimates a reduction in shares outstanding of about 200,000 shares per quarter. If the company executes the entire program, the company could buy back as many as 3 million shares. McClatchy has 21 million Class A common shares with over 7.5 million held by Private Capital Management. ?We consider this to be a fairly aggressive buyback program,? the note said.

The research firm increased its 2005 earnings per share estimate to $3.50 from $3.49. It is also raising its 2006 EPS estimate to $3.81 from $3.76. Goldman maintains its ?in-line? rating.

This afternoon McClatchy was up $0.63 at $63.13.

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