Pruitt Tells Analysts: No 'Draconian' Job Cuts Coming at KR Papers

By: Mark Fitzgerald and Jennifer Saba Gary Pruitt, The McClatchy Co.'s chairman, president and CEO, presented the $4.5 billion purchase of Knight Ridder Inc. as a hard-headed, clear-eyed deal on a newspaper industry that is strong and growing.

In a conference call with analysts Monday morning, Pruitt described the addition of 20 of the 32 Knight Ridder papers as "McClatchy-plus."

Pruitt said the dozen newspapers in slow-growth cities such as Philadelphia "don't fit into McClatchy's tradition of discipline," but assured employees in the papers it is retaining that "we have no plans for across-the-board layoffs or Draconian cuts in our newspapers."

McClatchy plans to achieve at least $60 million in cost savings by eliminating $40 million in corporate overhead and $15 million in overlaps between Knight Ridder Digital and McClatchy's Internet properties. The rest of the savings will come from other "operational synergies."

Pruitt said they are still sorting out which senior Knight Ridder executives they will retain in the transaction. "Obviously they are redundancies in the corporate area," Pruitt explained. "We don't anticipate any layoffs at the newspaper level as a result of this transaction."

While talking up newspapers, though, Pruitt also portrayed the purchase as cheap. By various calculations, he told analysts, the deal amounts to 9.5 times Knight Ridder cash flow. After the 12 dailies are shed, Pruitt said, the multiple will amount to between 9 and 9.5 times cash flow.

By contrast, Lee Enterprise's purchase of Pulitzer Inc.--another example of a one-time second-tier company taking a big step up in size--was almost 13 times Pulitzer cash flow.

As for the sale of the 12 properties, Pruitt explained McClatchy was open on the structure including possible newspaper swaps. "We don't know how these will be sold or the exact structure," Pruitt said adding the company expects to find buyers as the deal closes. "We have begun marketing these papers today," he said. "We have received inquiries already."

Analysts expressed some concern over tax issues that could result in the sale of 12 newspapers. Pruitt assured callers that McClatchy has assumed taxes that could relate to the sale of assets.

Wall Street has portrayed this as a kind of referendum on the newspaper industry, and Pruitt was at pains to express faith in the industry.

"We know that pessimism about our industry is indeed widespread these days, but we believe it is misplaced," he said. "Newspapers remain profitable businesses with strong audiences."

McClatchy, he said, has "a proven record of improving newspapers."

"We've done it in Tacoma, in Raleigh, and Minneapolis, and we will do it again," Pruitt declared.

Pruitt also talked up Knight Ridder's non-newspaper assets, especially its Real Cities Web portals and CareerBuilder, the jobs sites that are a partnership between Knight Ridder, Gannett Co. and Tribune Co. Those partners have a right to buy Knight Ridder's share in the event of a sale, but Pruitt said he hoped they would want to keep McClatchy on.

While Wall Street was disappointed that only one newspaper company stepped forward to buy Knight Ridder, Pruitt portrayed the deal as a "perfect fit" for McClatchy.

"Opportunities like this come along once in a company's lifetime," he said.

"The McClatchy family and the entire board of directors enthusiastically endorsed this deal," Pruitt said. "We do expect we are going to stay the same company with the same values, same goals and same principals."

The Knight Ridder papers that McClatchy is keeping are similar journalistically and financially, Pruitt said. McClatchy newspaper operating margins excluding overhead are 30.4% while the Knight Ridder papers being retained are 24.9%, he said.