By: Jennifer Saba Deutsche Bank Securities upgraded its rating on Knight Ridder Wednesday from "sell" to "hold" based on Tuesday's news that Knight Ridder's largest shareholder, Private Capital Management (PCM), is pushing for a sale of the company. The firm's analysts think the probability of a transaction is "high."
Additionally, the research firm expects other major shareholders -- including Southeastern Asset Management (which holds a 9% stake as of Q2) and Harris (which holds an 8% stake as of Q2) -- to follow PCM's lead.
Wednesday's decision comes just two days after Deutsche Bank downgraded Knight Ridder from "hold" to "sell" due to worries about 2006 ad-revenue growth.
Earlier, Goldman Sachs, Merrill Lynch, and several other research firms
concluded that the likelihood of Knight Ridder finding a buyer was, in fact, low.
If Knight Ridder goes on the block, Deutsche Bank thinks other newspaper companies -- notably Gannett and Tribune -- would be likely buyers rather than a private equity investor. (The research firm floated the idea of Tribune buying Knight Ridder in a "what-if" scenario in late September). The firm notes that both Gannett and Tribune have the capacity to do an all-cash deal for Knight Ridder.
"We think Gannett is a more likely suitor than Tribune, though in our view the strategic fit is better with Tribune," said the note.
The reason: "Tribune has no choice but to be a large market newspaper operator. ... The winning strategy for them may be to concentrate resources on developing a viable long-term growth strategy for the large market newspapers, and a component of that probably needs to be the creation of a truly integrated national advertising buy."
When Deutsche Bank does the math on a hypothetical Tribune/Knight Ridder deal, the combined company would have papers in 15 of the top 31 markets, with one in each of the top four markets, with a circulation in excess of 6 million.
As of 2 p.m. Wednesday, Knight Ridder shares were trading up $1.06 to $59.06. Tribune was trading up $.94 to $32.41, and Gannett was trading up $1.39 to $64.75.
Besides PCM, Southeastern and Harris, the top institutional investors are:
Eubel Brady (4%).
Vanguard (3.7%)
Barclay's (3.6%)
Price (3%)
Capital Research (2.9%)
JP Morgan Chase (2.7%)
Top mutual fund holders:
Longleaf (4%)
Oakmark (3.5%)
Price (2%)
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