McClatchy Lands Big One p. 14

By: Mark Fitzgerald California chain buys closely held Raleigh, N.C., daily
in a $373-million deal that surprised the industry sp.

IT WAS THE changing newspaper industry and not family pressure, the Daniels family says, that convinced it to sell the News & Observer of Raleigh, N.C., 101 years after Josephus Daniels bought the bankrupt paper at a county auction for $10,000.
McClatchy Newspapers Inc. is paying $373 million ? $250 in cash, plus the assumption of $123 million in debt ? for the 151,840-circulation News & Observer, six weeklies, the pioneering NandO Net online service, the slick Business North Carolina magazine and Benson Newspaper Printing, a commercial printer.
Over 101 years ? and especially in the past few years ? the Daniels family invested heavily in keeping the News & Observer abreast with the growth of its Research Triangle circulation area and with changes in the newspaper industry.
The paper moved into electronic publishing; it expanded and remodeled its offices and production plant, and is replacing its letterpress presses with two nine-unit-color flexographic presses.
Even so, the future was demanding more ? more, management became convinced, than the family operation could afford.
"The Triangle is poised for more tremendous growth, and the News & Observer needs to be in the forefront of that opportunity," president and publisher Frank Daniels Jr. wrote in a letter to employees. "To keep up with a growing community requires capital, but our access to capital is limited."
For a newspaper company as small as News & Observer Publishing Co., going public was not much of an option, Daniels noted, saying a public offering would make it "the smallest media company in the public market and would take a tremendous discount from our private market value."
Bringing in minor investors would "merely postpone the time of selling," Daniels said.
"Looking 10 or 12 years down the road, we do not see any scenario that keeps the News & Observer in the Daniels family," he said
"Unlike many family businesses, we are of one accord with no one pushing us to sell," he said. "The primary stockholders are all in their 60s and would not benefit from waiting 10 years. The bulk of the company's management is in their 30s and 40s ? young enough to continue to grow with an acquiring firm.
"In other words, there is no pressure to sell . . . . It would be fun and exciting for the N&O to remain in the family, but good business dictates that it's time to have new ownership, and the McClatchy family ownership is a good place for us to be," Daniels said.
McClatchy and the Daniels family are not strangers to each other.
In 1990, News & Observer Publishing sold McClatchy its South Carolina properties, among them the Beaufort Gazette, Hilton Head Island Inland Packet, and Rock Hill Herald.
In addition, McClatchy Newspapers president and CEO Erwin Potts served on the News & Observer's board of directors for 20 years, resigning only this March after being told the board was considering a possible sale. (On the same day the N&O acquisition was announced, Potts was named chairman of McClatchy Newspapers, succeeding James McClatchy.) As it turned out, Potts approached the Raleigh company about a sale, and his offer was the only one considered.
In 1994, the News & Observer company posted revenues of $107 million, the bulk of which derived from the New & Observer. Revenues this year are projected to reach $117 million, according to a statement from McClatchy.
McClatchy chief Potts called the acquisition "an excellent fit." For one thing, it will considerably diversify McClatchy's holdings, both geographically and journalistically.
In addition to its South Carolina papers, McClatchy owns the Anchorage (Alaska) Daily News and three Washington state papers, including the Tacoma News Tribune.
Nevertheless, the chain still earns roughly 70% of its revenues in California, home to its Bee newspapers in Sacramento, Fresno and Modesto, plus the Gilroy Dispatch and Hollister Freelance.
With the addition of the North Carolina papers, McClatchy will collect nearly half its revenues outside the Golden State.
N&O also gives McClatchy a big boost in electronic publishing. The company's NandO Net service, which logs some two million accesses weekly, dwarfs McClatchy's two electronic offerings, in Tacoma and Sacramento.
"No newspaper in the country is more advanced in this respect than the N&O. Our entire company can benefit from what [N&O executive editor and NandO boss Frank Daniels III] and his staff have learned," Potts said.
Potts praised the company's management and said Frank Daniels Jr. will continue as publisher of the News & Observer.
Nondailies included in the sale are the Chapel Hill News, Cary News, Smithfield Herald, Mount Olive Tribune, Zebulon Record and Gold Leaf Farmer ? all in North Carolina.
A purchase agreement was signed May 16, and the sale is expected to close Aug. 1. Lee Dirks of Dirks, Van Essen & Associates served as adviser and broker for the sellers.