By: Jennifer Saba The proxy statement that Knight Ridder filed with the U.S. Securities and Exchange Commission (SEC) on Thursday revealed a fascinating detailed account about the likely sale of the company to the McClatchy Co., and the year of pressure and machination leading up to it.
Aside from announcing the long-awaited June 26 date for the annual meeting of shareholders -- who will vote to approve the deal, or not -- the document gives outsiders for the first time an in-depth look at how investors forced the sale of Knight Ridder and how the bidding process worked.
It discloses that a total of 34 groups expressed an interest in the company at some point, although the vast majority appeared to be halfhearted -- and the McClatchy offer was really the only credible one.
The document also shows that pressure for a sale started earlier than most believe.
Bruce Sherman of Private Capital Management (PCM), Knight Ridder's largest shareholder, had initiated conversations concerning the value of shares with Knight Ridder executives and suggested the sale of the company as early as April 2005. Knight Ridder shareholders Southeastern Management and Harris Associates were involved as well. As a result, Knight Ridder retained Goldman Sachs as a financial advisor and Wachtell, Lipton, Rosen & Katz as a legal advisor.
"At a meeting held on April 26, 2005, the Knight Ridder board of directors discussed PCM's recommendation and the expressions of dissatisfaction from Knight Ridder's three largest shareholders, and reviewed the issues presented with management, Goldman Sachs and Wachtell Lipton," the statement reveals. "The board decided that it was not a good time to pursue a sale of Knight Ridder. On the following day, April 27, 2005, [Tony] Ridder contacted Mr. Sherman and advised him that the Knight Ridder board of directors had considered his views and reached the foregoing conclusion."
As the summer progressed and Knight Ridder's stock and earnings slumped, the company's three top shareholders continued to pressure the board for a sale.
On Nov. 1, 2005, as widely reported, PCM sent a letter to Knight Ridder's board demanding the sale of the company; Harris Associates and Southeastern Management filed letters shortly thereafter. On the morning of November 14, 2005, Knight Ridder publicly announced the decision to explore strategic alternatives and the bylaw amendment.
"Following Knight Ridder's public announcement, on November 16, 2005, McClatchy engaged Credit Suisse Securities (USA) LLC (Credit Suisse) to act as its financial advisor ...
"Representatives of Goldman Sachs contacted a total of 34 parties, 21 of which signed confidentiality agreements, including McClatchy, which signed a confidentiality agreement with Knight Ridder on November 23, 2005 ...
"On November 30, 2005, McClatchy's board met to discuss Knight Ridder's announcement and management provided the board its preliminary recommendations regarding McClatchy's possible participation in Knight Ridder's process ...
"On December 9, 2005, 11 parties, including McClatchy, and one consortium of investors (which had not yet signed a confidentiality agreement and which had not been provided the confidential information memorandum) submitted preliminary indications of interest. A number of these parties indicated the need or desire to partner with other investors due to the potential size of an acquisition of Knight Ridder ...
"The Knight Ridder board of directors continued to meet, together with its legal and financial advisors and management, to discuss the status of the bidding process, as well as potential alternatives to a sale of Knight Ridder in order to maximize shareholder value ...
"On January 12 and 13, 2006, senior members of McClatchy's management, together with financial and legal advisors, attended due diligence meetings with senior members of Knight Ridder's management. On January 24, 2006, McClatchy's board received a report from management on the due diligence conducted to date regarding Knight Ridder, the strategic aspects and risks of combining Knight Ridder and McClatchy and other strategic options and management's preliminary recommendations regarding submitting a bid ...
"On February 17, 2006, a form of merger agreement was distributed to the potential bidders, including McClatchy. On February 21, 2006, final bid instruction letters were sent to each of the potential bidders, including McClatchy, requesting that final bids be received by March 9, 2006....The instruction letter further requested that any financing commitment letters be received by March 7, 2006.
"During this period, the management of Knight Ridder together with the company's financial and legal advisors conducted a due diligence investigation of McClatchy because McClatchy had indicated that its acquisition proposal for Knight Ridder would include McClatchy common stock. This due diligence investigation included, among other things, a meeting with the senior management of McClatchy on February 24, 2006 and a number of conference calls.
"On February 27, 2006, comments to the form of merger agreement were received from McClatchy and one consortium of private equity investors. Representatives of Wachtell Lipton had discussions with the legal advisors for these bidders concerning the substantive issues raised by their merger agreement comments. On March 3, 2006, revised forms of the merger agreement were distributed to these bidders. Comments to the form of merger agreement were not received from any of the other potential bidders.
"During this period, representatives of Goldman Sachs contacted the other remaining potential bidders, one of which indicated that it would not be submitting a final bid proposal and the other of which indicated that it planned to submit comments to the form of merger agreement shortly (which ultimately were never received) ...
"On March 5, 2006, the Knight Ridder board of directors met with its legal and financial advisors and management to continue discussions of potential alternatives to a sale of Knight Ridder in order to maximize shareholder value, including engaging in a leveraged recapitalization of Knight Ridder and continuing to operate the Knight Ridder business as a stand-alone company.
"On March 7, 2006, Knight Ridder received financing commitment letters from McClatchy. On March 8, 2006, Knight Ridder received comments to the revised merger agreement from McClatchy. Following a presentation from its financial advisor, on the morning of March 9, 2006, McClatchy's board met and approved the submission of a final bid. On March 9, 2006, Knight Ridder received the final bid proposal from McClatchy....
"On March 9, 2006, Knight Ridder also received a proposal from the consortium of private equity investors that had supplied comments to the form of merger agreement. This bid provided for a per share value substantially below the value of the McClatchy bid. The bid proposal was not a definitive proposal, and indicated that it was subject to further due diligence investigation before the bidder would commit to moving forward with a transaction and that this due diligence would take approximately two weeks to complete. A final bid proposal was not received from any of the other potential bidders."
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