Knight Ridder Board Meets Today To Decide on Deal

By: E&P Staff Moving surprisingly quickly, Knight Ridder may announce as early as Monday the winner in its company auction--or that there was no winner at all. McClatchy is still viewed as the frontrunner but much mystery continues to surround Gannett and MediaNews. Knight Ridder's board will meet in New York on Sunday.

A front-page story in McClatchy's Sacramento Bee on Sunday observed that "it was far from certain that McClatchy would end up owning the San Jose-based chain. Although the McClatchy bid would translate into one of the costliest deals in the industry's history, it would also represent something of a discount, and it might be rejected by Knight Ridder's board of directors, said analyst John Morton of Morton Research Inc."

The paper said a key was trying to judge the future revenues for newspapers from online.--no easy task. Knight Ridder has a strong Web presence.

"'It wouldn't surprise me if the board decides they shouldn't sell at this price," Morton said. "This isn't a good time to be selling newspapers.'"

It's not known if Gannett has made any offer at all, yet the company told employees to be at their computers Monday morning for a webcast by president and CEO Craig Dubow, the San Jose Mercury News reports today.

As reported Friday, McClatchy reportedly bid above $65 a share, or more than $4.7 billion, perhaps just slightly more than an private equity group.

It's still not known if MediaNews, after much huffing and puffing and stories about a joint bid with Gannett, has made a formal offer. Sources with the company describe the situation as "still fluid."

Looking at the industry-wide picture, the Wall Street Journal on Saturday observed that analysts have said that if the sale price is near $70 a share, "it could signal that investors haven't given up on the newspaper industry and its future. But anything below $65 could put downward pressure on other newspaper-company stocks."

If McClatchy wins, it gets Knight Ridder's 32 dailies, adding to its lean stable of 12. "At that point, McClatchy might have more newspapers than it wants," KR's Mercury News reports. "If so, MediaNews and possibly Gannett might be interested in buying some of those papers. The Newspaper Guild has secured California investor Ron Burkle's Yucaipa group to attempt to buy up to nine union-represented Knight Ridder newspapers from whomever buys the company."

One potential conflict would be in Minnesota, where McClatchy already owns the Star Tribune in Minneapolis and Knight Ridder has the adjacent St. Paul Pioneer Press. A rather grim report in the latter on Saturday opens, "And then there was one? Word from Wall Street on Friday pointed toward a deal that potentially could leave the St. Paul Pioneer Press owned by the same company that owns the Minneapolis-based Star Tribune.

"What such a scenario would mean for the Pioneer Press is still guesswork. But the options open to the McClatchy Co., the Star Tribune's owner, could include selling off the Pioneer Press, or weathering a potential antitrust battle and running the paper itself, or shutting it down."

On the other hand, Knight Ridder might not sell anything. But a number of sources, according to the Mercury News, said the company would be compelled to sell an offer of $65 a share or more. Kara Cheseby, an analyst at T. Rowe Price, which owns 2.23 percent of Knight Ridders stock, endorsed the view.

"Thomas Russo, a partner at Gardner, Russo & Gardner, which owns 6.35 percent of McClatchy's stock, said he's excited about the potential sale," the Mercury News relates. "While acknowledging that it would be a challenge for McClatchy, he said the company would be buying Knight Ridder at a bargain relative to the premiums paid for other newspaper companies in recent years."

Knight Ridder shareholders will have to approve any deal.

If McClatchy were to buy Knight Ridder, "the move would appear to be a departure from the company's longtime strategy of buying newspapers only in growth markets," the Wall Street Journal observes today. "The company has in the past been selective about acquisitions, picking up papers in affluent, expanding areas like Hilton Head, S.C., and Raleigh, N.C." In a a conference call with analysts in January, Gary Pruitt, McClatchy's CEO, said the company wasn't interested in slow-growth markets. "We won't compromise our standards," he said.