McClatchy Announces Sale of Philly Papers to Local Group

By: E&P Staff The McClatchy Company today announced an agreement to sell Philadelphia Newspapers Inc. (PNI) to Philadelphia Media Holdings LLC (PMH) in a transaction valued at $562 million. The purchase covers the Philadelphia Inquirer and Philadelphia Daily News, and related media assets including philly.com.

Employees at the two papers were informed this afternoon about a 5 p.m. press conference and a 6 p.m. meeting of all staffers.

Philadelphia Media Holdings was formed by a group of local investors headed by advertising executive Brian Tierney -- who has ties to local business -- for the purpose of acquiring these assets. The two newspapers are currently owned by Knight Ridder, Inc., which McClatchy had agreed to acquire. The parties intend to close the transaction within roughly the same time frame as the close of McClatchy's Knight Ridder acquisition, which is expected this summer.

"We got it," said a jubilant Tierney as he rushed through the newspapers' lobby this afternoon to a meeting withpublisher Joe Natoli, according to a bulletin on the Inquirer's Web site. "We signed every line." This returns the papers to private, local control for the first time since Walter H. Annenberg sold to Knight Newspapers in 1969.

"This agreement represents a classic win-win deal -- good for McClatchy, good for the buyers, and good for Philadelphia," said Gary Pruitt, Chief Executive Officer of McClatchy, in a statement. "We are delighted to receive a full, fair price consistent with our projections, and further gratified about the buyer's commitment to the community, to good journalism and to the heritage of both these fine newspapers. We couldn't be more pleased with this result."

Philadelphia Media Holdings, led by Tierney, was formed in 2006 for the purpose of acquiring these properties. It includes civic, labor and corporate leaders, entrepreneurs and private investors.

"On behalf of the dedicated local investors who have joined together to purchase the Philadelphia Inquirer, Daily News, and philly.com, this is a day of immense pride and heartfelt excitement," said Tierney in a release. "The next great era of Philadelphia journalism begins today with this announcement.

"We intend to be long-term owners committed to serving this region with the vigorous, high-quality journalism we all expect of the Philadelphia Inquirer, Daily News and philly.com, and we intend to preserve both papers and their unique and valuable contributions. Our plan is to invest in and grow both papers, not allow them to erode, and we know the employees are eager to join us and get started doing just that."

Union leaders said they look forward to meeting with the new owners in preparation for contract talks later this year, an Inquirer article by Joseph DiStefano revealed. "His enthusiasm is infectious," John Laigaie, president of Teamsters Local 628, which represents Inquirer and Daily News truck drivers, told DiStefano, referring to Tierney.

Knight Ridder CEO Tony Ridder called the deal "a great outcome" and said, "One of the most important considerations in selling these newspapers was to respect and secure their proud heritage of top journalism and community service. We are gratified to have been able to work with McClatchy and these new owners to see that happen."

Joe Natoli, the PNI chief, said in a memo to staff, "From the very first meeting, representatives of Philadelphia Media Holdings have clearly been smart, aggressive, passionate and committed. It's hard not to get caught up in their enthusiasm. They also know full well that we are about to become a laboratory for newspaper local ownership that will be watched intently by others. It's a terrific opportunity for us to show what we can do."

The McClatchy release, perhaps anticipating some analysis finding the price a little low, stated: "Releasing the sale's multiple in this transaction would have the effect of disclosing the profitability of a single business operation, which is contrary to McClatchy's practice and against the buyer's wishes. Yet while we cannot supply a multiple, it's important to note that the price is right in line with our expectations and with our broader projections for the proceeds to be raised in our previously announced divestiture process.

"McClatchy will receive $515 million in cash proceeds, and PMH will assume $47 million in pension liabilities. We now have agreements to sell six of the 12 papers to be divested, and we are confident the remaining six will sell for prices that will put total receipts above $2 billion, as we projected."

Pruitt said the transaction also demonstrated McClatchy's commitment to consider a wide range of criteria in addition to price when selling the papers. 'It's important to note that despite fears expressed about who might buy the Philadelphia newspapers and what their intentions might be, we have secured an agreement that keeps both of them in business and promises principled ownership for the future," Pruitt said in the statement.


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