Staffers at ‘Star Tribune’ Struggle to Understand Sale

By: E&P Staff

It must have surprised its own newsroom as much as it did news operations and media observers across the country.

After reports surfaced Tuesday that the Star Tribune in Minneapolis would be sold by McClatchy Co. to a private equity firm called Avista, a columnist at the paper, Doug Grow, said workers there — like everywhere else — were scurrying around the Internet trying to find out anything about Avista.

“Everything we’ve heard from McClatchy recently is ‘Hey, we’re all in this together. We don’t do layoffs.’ Blah blah blah BS,” he told the Associated Press.

The 1998 sale by Cowles Media Co. ended decades of family ownership for the Star Tribune, the AP report continued. “As much as you hated the idea of local ownership disappearing, which it did, and ending up as part of a chain, at least it was a chain in the newspaper business,” Grow added.

The newspaper noted: “Star Tribune Editor Anders Gyllenhaal recently took a new post as executive editor at the McClatchy-owned Miami Herald. Gyllenhaal said Tuesday he was asked to take the Miami job before he learned that a Star Tribune sale was pending.”

The New York Times on Wednesday observes: “The sale caught most employees at the paper off-guard and angered some newsroom employees, who expressed concerned that Avista Capital Partners, which owns no other daily newspapers, could make severe staff cuts.”

Nick Coleman, a metropolitan columnist for the paper, told the Times, ?It was like, who? Everyone knows the whole industry is in play and that just about anything could happen, but nobody thought we could get sold. There?s a real sense of betrayal …

?At a fire sale,? he said, ?people get discounted, so we?re very concerned, worried and anxious.? But he added, ?maybe it takes someone from outside the newspaper business to see the way forward.?

On Wednesday, shares of McClatchy Co. rose 9 cents to $43.16.

The Minnesota Newspaper Guild has been told that the new owners will honor the Star Tribune’s labor contracts, said Darren Carroll, executive officer of the Guild, told the paper for an article on Wednesday. Among the Guild membership, “there’s certainly surprise, concern and some anxiety about what this means for the future of the paper,” Carroll said.

So was buying the Star Tribune nearly a decade ago a mistake for McClatchy? It seemed to sell it for much less than it paid for it, albeit with tax benefits.

Pruitt said it wasn’t, the AP reported: “He said Avista paid an attractive price for the paper, and that the Star Tribune was the only paper it could sell at a loss to get a tax benefit at a time when McClatchy needs one. And he said McClatchy has collected more than $1 billion in cash flow from Star Tribune operations during those years. ‘But there is no doubt we’re selling the paper for less than we bought it for,’ he said. ‘The Star Tribune had several good years, where profits increased, and then in recent years it has lagged as revenues have underperformed.'”

The paper’s union contracts will remain in place.

So how did the Star Tribune report its sudden purchase?

Late Tuesday, it produced the following mini-profile of the chairman of the board who will now oversee the paper — Chris Harte, who comes from Avista:

“Christopher Harte has ink in his blood.

“His father and grandfather were newspaper executives, and Chris Harte has been a publisher for Knight Ridder in Akron, Ohio, and State College, Pa.

“Harte was president of the Portland Press Herald and Maine Sunday Telegram from 1992 through 1994. He was publisher of the Centre Daily Times in State College, Penn., from 1986 through 1989, and also served as publisher at the Akron Beacon Journal from 1989 through 1992. He was an executive with Knight Ridder newspaper chain in 1985-86, and with the Miami Herald from 1983 through 1985.

“Harte, 59, has a B.A. from Stanford University and an M.B.A. from the University of Texas. He lives in Austin, Texas. As the Star Tribune’s chairman, he said, he’s looking to ensure that Minnesota’s biggest newspaper remains a leader. ‘I certainly am in this because I love this industry,’ Harte said Tuesday in Minneapolis. ‘I love the power of a newspaper to do good things for its community.'”

The paper’s Web site also posted a general story, written earlier in the evening, by reporter John Reinan. It includes a tough-minded quote from newspaper analyst John Morton, who had spoken earlier to E&P for a story we posted late Tuesday afternoon.

It follows.

*
A private equity firm has reached an agreement to buy the Star Tribune from the McClatchy Co., publisher Keith Moyer announced today.

Avista Capital Partners, an investment group focused on media, health care and energy companies, will pay $530 million for the newspaper, which Sacramento, Calif.-based McClatchy bought from Cowles Media Co. in 1998 for $1.2 billion. Avista has offices in New York and Houston.

The deal is expected to close formally sometime in the early spring. Chris Harte, a member of Avista’s advisory board, will serve as chairman of a board overseeing the Star Tribune. Harte is a former publisher of newspapers in Akron, Ohio; Portland, Maine and State College, Pa.

The printed daily newspaper “will be the core of our business well into the future,” Harte told hundreds of employees gathered in the Star Tribune’s largest assembly room. “But it won’t be the overwhelming majority that it is today many years from now.

“You and I and everyone who works with us will have to listen carefully to our readers and our advertisers and make sure we provide them with the information and advertising they want, when they want it, how they want it,” he said. “By doing that, the Star Tribune will continue to be the dominant medium in the Twin Cities.”

Moyer said he will remain as publisher, reporting to Harte, and that the newspaper’s management team will remain intact.

Earlier this year, McClatchy completed the acquisition of the former Knight Ridder chain, becoming the nation’s second-largest newspaper company. The Star Tribune sale will knock the company back down a notch to No. 3.

Immediately after announcing the $4.5 billion Knight Ridder buyout, McClatchy began selling a dozen of its newly acquired papers in what the company said were slow-growth markets or, in the case of the St. Paul Pioneer Press, raised anti-trust concerns.

In a statement Tuesday, McClatchy said that “a detailed analysis of the company’s portfolio identified a number of unique financial tax benefits associated with the sale of the Star Tribune that would serve the long-term interests of the company and its shareholders.”

McClatchy CEO Gary Pruitt, in an interview Tuesday, called the deal “a very difficult decision, a tough one for McClatchy to make. But we believe the company will be strong and that it won’t affect our other newspapers very much.”

In the wake of the sale, Pruitt said, he expects the financial performance of McClatchy to improve. He said the company will use the proceeds from the Star Tribune sale to pay down debt incurred in the Knight Ridder purchase.

“The Star Tribune did very well for a few years, but recently it has lagged in performance,” as have many of the nation’s largest newspapers, Pruitt said. “Large metro papers have under-performed smaller ones because they’ve been more dependent on classified ads, which have been most affected by the Internet. The Star Tribune suffered from that.”

He said it “remains a profitable, strong newspaper … the market remains a good market and the Star Tribune remains one of the best newspapers in the country. That’s one reason this is such a difficult decision.” He said there are no plans to sell other newspapers in the chain.

The timing “might look suspicious, the day after Christmas and all. It was unfortunate, but we wanted to announce as soon as possible,” Pruitt said. McClatchy’s board of directors reached a decision to sell in November “and we’ve worked as quickly as possible ever since. We signed the agreement today and legal obligations [under federal security laws] meant we had to announce in short order.”

Newspaper analyst John Morton told the Associated Press that the sale was “inexplicable and disappointing.”The Minneapolis Star Tribune has a good reputation, has always had a good reputation. It is the kind of newspaper that you would have hoped a company like McClatchy would continue to own,” Morton said.

“Clearly what is happening to McClatchy is that they are much more concerned about their overall financial performance than they are about publishing newspapers, the way I read it,” he said.

Earlier, in a memo to company employees, Pruitt called the Star Tribune deal “an unsettling surprise. Selling an established McClatchy paper certainly is not business as usual for us.”

Moyer thanked McClatchy for its “steady, forthright stewardship” and said the new owners are “progressive, very smart, good-hearted people who believe in the future of newspapers and in a bright future for the Star Tribune, specifically.”

Harte told employees that newspapers need to change quickly as readers and advertisers face a growing number of alternatives for information and selling products and services.

“I think it’s a fascinating and exciting time to be in this business,” he said. “Some think of it as scary, but I don’t, and I hope you don’t either.

“We have tremendous opportunities, and it’s a great time to be in the news and advertising business.”

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