In Wake of Tribune Deal — Will Other Companies Go Private?

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In just over a year, unhappy shareholders have pressured two of the nation’s largest newspaper companies into selling themselves. Who might be next?

The short answer may be: Not anyone — yet.

With Tribune Co. going private under a deal announced Monday and Knight Ridder Inc. being sold to McClatchy Co. last year, most other newspaper companies are controlled by families or foundations, allowing them to resist pressure from shareholders.

Sam Zell, the billionaire real estate developer who is helping take Tribune private, saw opportunity where others saw trouble. But as the drawn-out sale process made clear, many investors remain worried about how newspapers are losing readers and advertisers to the Internet.

Those woes, however, are being felt differently throughout the newspaper business. Knight Ridder Inc., which was sold a year ago to McClatchy Co., had a significant amount of exposure to mid-size cities, where newspapers have tended to suffer the most. Tribune has papers in Chicago, New York and Los Angeles but also several in mid-size cities such as Baltimore.

Industry leader Gannett Co. is now the only large, publicly traded and nonfamily controlled newspaper publisher, but that company has long been well-regarded on Wall Street and doesn’t have any single large shareholder who could shake things up, as was the case at both Tribune and Knight Ridder.

Many newspaper owners have two classes of stock, with one class being held by a family or a trust that has special voting rights, such as the ability to elect a majority of directors.

One is The New York Times Co., which has made headlines in recent months because of protests from a Morgan Stanley investment fund manager who wants the company to eliminate the two-class share structure that allows the Sulzberger family to maintain control.

The Times has kept the fund manager at bay, and, with the blessing of the Securities and Exchange Commission, declined to include a shareholder proposal from him that would have called for ending the two-class system, which can only be changed by Sulzberger family members.

“You can rattle their cage as much as you want, but they can run their business as they see is in the best interest of their shareholders,” Edward Atorino, a publishing industry analyst with Benchmark Co., said of family-controlled publishers. “They have the flexibility not to be pressured by Wall Street.”

Besides the Times, The Washington Post Co., Dow Jones & Co., which publishes The Wall Street Journal, and McClatchy Co. and others also have two classes of stock. Several other publishers are privately held, including MediaNews Group Inc., owner of The Denver Post; Hearst Corp., publisher of the Houston Chronicle, and Advance Publications Inc., owner of The Star-Ledger of Newark, N.J.

Besides Gannett, there are a handful of other newspaper publishers who also have a single class of stock but are in situations that make them unlikely targets for shareholder revolts.

GateHouse Media Inc., a major community newspaper publisher, went public recently but is still majority-owned by Fortress Investment Group. Journal Register Co. and Triple Crown Media Inc. also has one class of stock but also high levels of debt that would make them difficult to take over, says Donald Wong, publishing analyst at the credit rating firm Standard & Poor’s.

That leaves Gannett, which, despite the troubles affecting the entire newspaper industry, has long been well-regarded by investors.

“They seem to be Wall Street’s favorite,” Atorino said. “They always present a very frank, honest, open forum. They lay out their problems and say how they’re going to fix them.”

Gannett also has important differences with both Knight Ridder and Tribune. Many of Gannett’s papers are in smaller cities, where lucrative classified advertising dollars have been less challenged. Gannett also owns USA Today, a major national daily, which is the other end of the newspaper business that has held up relatively well.

In the case of The New York Times, their own Boston-area properties have taken a massive hit. Earlier this year the company took an $814.4 million charge to write down the value of The Boston Globe and the Worcester Telegram & Gazette, or about 60 percent of the price the company originally paid for the papers.

McClatchy Co. took many in the newspaper business by surprise late last year with a deal to sell its largest property, the Minneapolis Star Tribune, to a private equity firm for $530 million, less than half of the $1.2 billion it paid just eight years earlier.

McClatchy’s CEO Gary Pruitt said last week that having family control gave the company a “degree of insulation” from Wall Street pressures. But even that insulation will be of little solace for family-controlled publishers if industry trends take a sharp turn for the worse — as some fear they may.

“Nobody knows where the bottom is,” says Philip Meyer, journalism professor at University of North Carolina at Chapel Hill. “If you’re a family member in that situation … it makes it a hard thing to sell, unless you find a buyer who is motivated by something other than financial returns.”

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