McClatchy CEO Pruitt: Advo/Vallasis Combo ‘Warning Sign’

By: Mark Fitzgerald

McClatchy Co. CEO Gary Pruitt told analysts Thursday that Valassis? $1.3 billion acquisition of direct mailer ADVO is ?a warning sign? for the industry, but that newspapers are well-positioned to keep their preprint business.

?The merger of ADVO and Valassis on its surface is a warning sign,? Pruitt said. ?ADVO obviously is a distribution company and that give Valassis new options.?

Nevertheless, he argued, newspaper is a cheaper and more effective advertising medium than direct mail — so Valassis will have to keep using newspapers for insert distribution. ?Valassis will have to look first and foremost at what is in the best interest of its customers, not necessarily what is in the best interest of its new partners,? he said.

In a wide-ranging conference call that lasted for nearly 90 minutes, Pruitt and other McClatchy executives spoke about the recently completed $6.1 billion acquisition of Knight Ridder, promised to pay down as quickly as possible the debt taken on to make the deal, vowed to grow the Real Cities online network created by Knight Ridder, and said they hoped to resolve their status at quickly.

With the Knight Ridder acquisition, McClatchy inherited a one-third interest in online help-wanted network. Because of the sale, though, the two other partners in the venture, Tribune Co. and Gannett Co. have an option to take over the stake.

Pruitt declined to comment on the talks underway about CareerBuilder, but said he expects to have the issue resolved ?within weeks, not months.?

Don?t expect any stock buyback program soon, Pruitt told the analysts: ?We?re disinclined to buy back stock when debt is about four times cash flow, where it is now…Our plans are to repay debt exclusively for a few years, and get it closer to two times cash flow.?

Just before the Knight Ridder deal closed, McClatchy borrowed $3.076 billion and used the proceeds from the sales of four of Knight Ridder newspapers to pay Knight Ridder stockholders, plus refinance some of the existing debt of it and Knight Ridder. Its total debt at closing was $4.676 billion.

McClatchy has since repaid about $500 million using after-tax proceeds from the sale of the Philadelphia Inquirer and Philadelphia Daily News.

Its debt as of July 12 was 4.129 billion, McClatchy said.
It expects to pay down another $850 million with the proceeds from the sale of six other former Knight Ridder papers.

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