By: E&P Staff One would imagine that the San Jose Mercury News, a Knight Ridder newspaper in the chain's hometown, would be on top of the new and rampant speculation spreading this week surrounding a possible sale or breakup of the company. If so, hang on to your hat.
The paper's Chris O'Brien reports Friday that a source has confirmed Knight Ridder's hiring of investment bank Goldman Sachs to study the various strategies it could pursue. "With shareholders who control more than 35% of its stock now speaking out, analysts said Knight Ridder Chairman and CEO Tony Ridder needed to seriously consider the request to sell," O'Brien wrote. "If Ridder decides against a sale, analysts say he'd need to respond quickly by offering an alternative strategy and move to build support among other shareholders.
"Either way, analysts said the company is clearly vulnerable to a takeover bid and could be facing a vicious battle that could drag on for months."
All of this action comes as three of the company's top investors press for some kind of action. They control about 35% of the shares of stock, a sizeable number.
Meanwhile, Standard & Poor's Ratings Services late Thursday placed its "BBB+ long-term and "A-2" short-term corporate credit ratings on Knight Ridder Inc. on CreditWatch "with negative implications." It said about $2 billion of debt is outstanding and cited "uncertainty" over this week's actions.
"I assure you that all over this country, there are people at media companies and private equity firms crunching numbers and figuring out where they would be on buying this thing,'' said Ken Marlin, a managing partner at Marlin & Associates, a mergers and acquisitions firm in New York.
The Mercury-News noted that experts on shareholder activism said the public declarations by Knight Ridder's stockholders required the company to seriously study the prospect for selling.
Douglas Arthur, a Morgan Stanley analyst who upgraded the stock this week, told O'Brien that he wondered whether Ridder, who is 65, had the energy for a protracted battle.
"I think to Tony's credit, he's been very shareholder friendly,'' Arthur said. "This is one of the most aggressive buyback programs in the industry. I think they get high marks for caring about shareholders. But the earnings and the stock market have not responded.''
More from O'Brien:
"If Knight Ridder rejects the call to sell, analysts said it would have to come up with an alternative plan that provides detail about its strategy to raise the stock price. In that case, the company still has options. Analysts noted the company could increase the stock buyback plan or consider deeper cuts in expenses and staffing. The board could also attempt to buy the shares of dissenting stockholders, break up the company and sell some pieces, or explore ways to take the entire company private.
"Knight Ridder could also seek out a friendly private investor or investment group -- a white knight -- to buy out dissenting shareholders. ?
"If dissident shareholders aren't satisfied with the alternatives, Knight Ridder is probably looking at a nasty public proxy fight leading up to its annual meeting in April. At the time, three of its 10 directors would be up for re-election and dissident shareholders would likely propose an alternative slate."
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