Shoptalk: The Newspaper Trade

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By: Mark Fitzgerald

In their first note to readers after the announce- ment that Knight Ridder Inc. had sold the Detroit Free Press to Gannett Co. and that MediaNews Group would now own The Detroit News, new Freep Publisher Dave Hunke and the paper’s new editor, Paul Anger, called the transaction “a deal without precedent in newspapers.”

Newspaper merger and acquisitions (M&A) specialists were as blindsided as anyone in the News or Free Press newsrooms by the deal that dramatically changed the Detroit joint operating agreement (JOA), and also saw Gannett and Knight Ridder swapping newspapers between Florida, Idaho, and Washington state. But these brokers also say that these swaps long ago ceased to be precedent-making.

“This is not new — and it’s just going to continue,” says John Cribb, president of the Bozeman, Mont.-based M&A firm Cribb & Associates. “If you polled the presidents of 15 or 20 newspaper companies out there and asked them, in theory, if they’d like to exchange some of their assets for other ones, I think you’d get a unanimous ‘Heck, yes.'”

The unusual circumstances surrounding the Detroit deal — such as the long and contentious history of getting to the JOA and the legacy of the bitter labor dispute in the 1990s — make it appear that Knight Ridder’s decision to shed the Free Press and, for that matter, the Tallahassee (Fla.) Democrat, was somehow unique. In hindsight, though, it seems almost predictable because it was driven not by historical accidents in Detroit, but by the tides of the newspaper industry itself.

For one thing, this deal takes Knight Ridder in the direction every newspaper company wants to go: from slow- or no-grow cities to markets in Washington state and Idaho that may be far smaller, but have, as the analysts like to say, more “upside potential.”

And speaking of analysts, swaps like the Knight Ridder/Gannett/MediaNews five-paper deal are also more attractive to chains because they play better on Wall Street. “You have a lot of companies saying, look, I have no interest in selling assets because there’s not only a tax consequence … there’s also a market consequence,” Cribb says. Particularly, he adds, if there’s a perception by analysts that a chain selling newspaper “is paring things down. Newspapers say to themselves, ‘What we ought to do is sell them, but we don’t want to, because it looks like we’re trimming down the company.'”

Then, too, by delivering to Knight Ridder The Idaho Statesman in Boise and two Washington papers, The Olympian and The Bellingham Herald, the deal pushes the chain’s center of gravity further to the West — and away from the Rust Belt. It’s been eight years since Knight Ridder shed its Gary, Ind., property — once the site of its ballyhooed “18-to-34” youth readership initiative — and it moved its headquarters from Miami to Silicon Valley in California.

Knight Ridder is hardly alone in that. Consider the year’s other blockbuster newspaper deal. While the sale of the St. Louis Post-Dispatch to Lee Enterprises hogged all the headlines, the real news in that transaction was how the other Pulitzer Inc. newspapers strengthened Lee’s presence in the West.

The Detroit deal obeys the new industry logic from the perspective of Gannett and MediaNews, as well. As broker Cribb points out, the lure of getting bigger is irresistible. “Everybody wants to trade up,” he says. “All the time, small- and mid-sized papers say they would trade a 10,000-circulation daily towards a 50,000-circulation paper. Well, yeah, get in line — everybody wants to do that.”

So why aren’t there more deals like last month’s four-state swap meet? “The rub is, trades are hard,” Cribb says. “You can find someone who wants certain papers, usually, but the question is: Do they have something that the other company wants?”

Buyers are also pickier these days. Brokers uniformly report that the M&A market has bounced back strongly from the severely depressed levels of 2001 and 2002. The competition is fierce for good newspapers. “But there’s a significant business difference with, say, 1998- 2000,” Cribb says. “People would buy anything in the last cycle.” These days, he adds, “People will pay, and pay very high prices … but the deals have to be exactly right.”

Seen in an industry context, Detroit’s three-way tango was exactly right for all its participants.

The deal prompted a lot of weeping and gnashing of teeth among journalists around the nation, as if Knight Ridder’s sale of the Detroit Freep amounted to some kind of moral transgression. It’s good to remember that when Jack Knight bought the Free Press in 1940, he was at least the fourth owner since John Pitts Sheldon founded the paper in 1831 as a weekly mouthpiece for the Democratic Party.

And someday, in some changed newspaper economy, Gannett, too, may find that the exactly right thing for it is to sell or swap the Free Press to someone else.

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