McClatchy Deal for KR 'Far From Clinched'

By: Jennifer Saba While press reports peg McClatchy as the front-runner in the Knight Ridder auction, the deal is far from clinched. McClatchy's initial bid is allegedly $65 per share in a cash and stock deal suggesting a multiple of about 10 times EBITDA, or about $4.5 billion.

To put that in perspective, in January 2005 Lee Enterprises purchased Pulitzer, publisher of the St. Louis Post-Dispatch, in a $1.4 billion deal that came to about 13 times EBITDA.

Some financial analysts think that $65 per share is the ceiling for the Knight Ridder auction. Bear Stearns analyst Alexia Quadrani wrote in a note this morning the reported bid is "about the maximum price a buyer may be willing to pay, and even this may not be enticing enough for Knight Ridder's board or shareholders to accept."

A multiple of 10 times is not expected to boost the sector, either. "We don't believe the bids will give a lift to the newspaper group," Merrill Lynch analyst Lauren Rich Fine said in a report released today.

Yet the fact that McClatchy might be in the lead and other media players like Gannett and MediaNews Group are reportedly still in the process can only be good news for Knight Ridder.

Ed Atorino, managing director at Benchmark Co., thinks KR shareholders will be pleased with what's on the table so far -- though that's speculation since the final price could fluctuate. Whatever the outcome, he expects the Knight Ridder board will present some deal to shareholders.

"I don't think the shareholders will say no ... a bid north of 10 times EBIDTA is a very solid deal," said Atorino.

The more companies interested also mean that Knight Ridder could fetch a higher price than the initial bids, suggests Linda Foley, president of the Newspaper Guild. The Newspaper Guild is still working with bidders in an attempt to back a worker friendly buyout plan for nine Knight Ridder papers.

Of course, analysts and shareholders recognize that at this point, the alleged bids and companies involved is still conjecture. Henry Berghoef, vice president of research at Harris Associates, one of Knight Ridder's largest shareholders declined to comment, saying he's not going to speculate on press reports.

Knight Ridder put itself on the block after coming under fire from its largest institutional shareholder, Private Capital Management (PCM) last November. Shortly thereafter two other larger shareholders, Harris Associates and Southeastern Asset Management, joined PCM in its quest to pressure Knight Ridder's board for a sale.

PCM stared acquiring shares of Knight Ridder in 2000 for roughly $65 per share. Over the past five years, Knight Ridder's stock has fluctuated from its high of about $78 per share in spring 2004.

Knight Ridder is trading up $1.51 to $64.17. McClatchy is also trading up $0.15 to $52.08.