By: Jennifer Saba
Gary Pruitt, CEO of McClatchy, can now add Minneapolis to the list of cities where he is, at least right now, something of persona non grata — the same city that put McClatchy and Pruitt on the map when the then small company maneuvered a $1.2 billion acquisition of the Star Tribune in 1998.
When McClatchy went in stealth mode and sold the Star Tribune to Avista Capital — announced the day after Christmas no less — Pruitt understood he would get a winter-cold reception from stunned staffers.
He had been through this before when, 10 months earlier, McClatchy announced it would sell off 12 Knight Ridder papers. Then he was deluged with hundreds of angry e-mails from Knight Ridder employees.
Since the Minneapolis sale, Star Tribune newsroom sources have been airing their grievances in the press, including a Minneapolis/St. Paul City Pages story by Britt Robson who quoted an unnamed staffer saying, “Pruitt is a joke.”
Now Pruitt responds: “I would feel worse if they were happy that we were selling them,” he told E&P when asked how he felt about the comments. “I understand the criticism comes with the territory … The Star Tribune contributed greatly to McClatchy. It was a difficult decision.”
McClatchy had come to the conclusion to sell the Minneapolis paper — which had been underperforming for several quarters on both the advertising and circulation front — last summer.
Year-to-date through November, ad revenue at the paper was down 6%, according to Wachovia Equity Research. Daily circulation at the paper fell 4.1% while Sunday declined 6.3%, according to the latest ABC reporting period.
McClatchy executives conducted an analysis of the Knight Ridder papers before determining which ones they would jettison. They applied that analysis to the company’s legacy properties.
“At the same time the Knight Ridder deal was closing” — at the end of June 2006 — “we began evaluating the situation and concluded that the company would be better off long-term if we sold the Star Tribune. It was a difficult decision to reach but we felt it was in the best long-term interest of the company,” Pruitt said.
The board agreed to sell the paper in late November and McClatchy quietly called potential bidders instead of holding a public auction. “We wanted to move very quickly,” Pruitt said about conducting the sale behind closed doors. “We felt that keeping the process quiet was the best way to do that.”
The move has been criticized by some, including Merrill Lynch, which noted on Thursday, “Industry participants are still trying to understand [McClatchy’s] decision to sell the Minneapolis Star Tribune at such a low multiple having not shopped the property to strategic buyers.”
Pruitt said more than one party placed bids on the paper but declined to name those bidders or disclose the number involved. When asked if a local in Minneapolis had come forward with an offer he said, “no comment.”
McClatchy reaped a $160 million tax benefit on a $530 million sale — considered low by indusry standards.
Pruitt defends the price of $690 million: “That translates to a multiple of cash flow that is higher than what we paid for Knight Ridder, higher than what we are currently trading at, and higher than the after-tax proceeds of selling the Knight Ridder papers.”
Merrill Lynch estimates a last twelve-month (LTM) multiple in the 6.5 to 7 times range (before the tax benefit). The research firm called it a “fire sale.”
Despite the low price, analysts still found the positive: “While [McClatchy] will take a loss on the asset, we think it demonstrates the company is willing to make difficult business decisions,” wrote Wachovia Equity Research senior analyst John Janedis.