Ridder Fights War On Two Fronts

By: Lucia Moses All newspaper companies have had to make hard financial decisions this year, yet none have had to do so under the pressure, internal and external, faced by Knight Ridder. While Tony Ridder has been on a cost-cutting campaign since becoming chairman and CEO of the company in 1995, this year his profit-maximizing strategy led to a full-scale revolt. But Ridder isn't taking it sitting down.

For example, there was Ridder, in a Dec. 10 interview on PBS' "NewsHour With Jim Lehrer," explaining he did not cut staff solely to raise profit margins.

The latest salvo was fired in a scathing 3,450-word article in Fortune magazine, dated Dec. 24, which argued that, in trying to save the company, Ridder has only contributed to its decline, perhaps making it vulnerable to a takeover.

Since midyear, Ridder has fought back, waging a two-front war -- one against journalists, the other against analysts. In a lengthy memo to all company employees, in advertisements in trade publications, and in interviews, he has tried to convince journalists that Knight Ridder is as committed as ever to prize-winning reporting. Ridder has argued that the cuts he's made are necessary to keep the company independent. If he didn't manage with an eye toward Wall Street, the argument goes, he would invite a takeover. To analysts, he has offered eight reasons he's optimistic about the business, including strong cash generation, tight cost controls, and low newsprint prices. Editorial excellence made the list, too.

The company isn't doing half bad in the eyes of investors: the share price has risen nearly 10% so far this year, compared with a 2% gain by the Standard & Poor's Publishing Index. Analysts consider Knight Ridder to be attractive relative to its peers. For one thing, the company's ownership of big-city dailies should lead it out of the recession faster than those peers, Merrill Lynch analyst Lauren Rich Fine wrote in a Dec. 11 research note.

Still, analysts have been impatient for the company to address cost-cutting. Prudential Securities' Steven N. Barlow wrote Sept. 28 that while he was "impressed" with Ridder's cost cuts in recent years, the company hasn't been able to slash as fast as revenue declined this year, suggesting that the company wasn't run as tightly as once thought.

Knight Ridder may have gotten more of a drubbing in the press than any of its peers for one simple reason: In addition to being second only to Gannett Co. Inc. in daily U.S. newspaper circulation, it owns some of the most prized journalism properties, including The Miami Herald and The Philadelphia Inquirer. And, unlike other businesses, a newspaper is "a very public forum," said newspaper analyst John Morton.

Miles E. Groves, a newspaper economist and consultant, said that lost amid the debate about quality journalism is the fact that Knight Ridder is investing in the company's future, through new circulation systems. "No one's telling that story," he said.

Ridder also has been relatively accessible to reporters. That may change in the wake of the Fortune article. But with an advertising recovery not expected until the middle of next year, and Ridder pledging to carve another 7% off personnel next year, it's likely that his public-relations war won't be over soon.