Gannett More Likely to Bid for KR Now That Northcliffe's Off the Block?

By: Jennifer Saba Daily Mail and General Trust (DMGT) announced today it?s pulling its Northcliffe regional newspaper unit in the United Kingdom off the block because bids came in too low. ?The offers reflected the recent downturn in trading in the regional newspaper sector caused by the weakening of the broader UK economy,? said a statement released by DMGT. ?The offers did not fully reflect the long term value of the business.?

Earlier this week, financial analysts speculated that Gannett would pull out of the Knight Ridder auction if it won the U.K. newspapers. With Northcliffe off the block, Gannett can now focus its attention exclusively on Knight Ridder.

The DMGT board received three offers, reportedly one from Gannett, as well as proposals to acquire parts of the business on Feb. 8. Reports indicated that Northcliffe properties were valued at approximately (U.S.) $2.5 billion.

Northcliffe publishes over 100 publications in the U.K. including 20 daily newspapers.

Still, Gannett?s interest in Knight Ridder is in question. Merrill Lynch released a note this afternoon that said, ?We do not believe the odds of Gannett buying Knight Ridder are necessarily higher now that the U.K. deal is off. As management has always had a disciplined approach to acquisitions, we trust that it would evaluate each deal has its own merits.?

The fact that DMGT decided to retain Northcliffe also implies the newspaper market has cooled, considering the last big transaction of Lee?s purchase of Pulitzer. That deal had an average multiple of 13 times EBITDA.

?It certainly suggests that buyers are not willing to pay up,? said Ed Atorino, managing director at BenchmarkCap. He figures that DMGT was trying to fetch 11 times its cash flow. ?It was an overly ambitious asking price,? he said. ?It?s a dose of reality.?

As of mid afternoon, shares of Gannett were trading down $0.43 to $62.70. Knight Ridder is trading down $0.43 to $62.70.