Surprise! McClatchy Makes Top Bid for Knight Ridder

By: Jennifer Saba McClatchy has turned in the top bid for Knight Ridder ? an offer of roughly $65 per share in a cash and stock deal, The Wall Street Journal reported late Thursday night.

Knight Ridder spokesman Polk Laffoon would not comment but he did say that no deal has been reached. The auction will be in play at least until Sunday; an announcement is not expected until several days after March 12.

There was no word on a Gannett and/or MediaNews Group offer, though they were said to retain interest.

The New York Times on Friday pegs the McClatchy offer at $4.8 billion in cash and stock, with a nonbinding bid from a private equity group at $4.7 billlion. Knight Ridder's market value is estimated at $4.6 billion.

The offer of $65 per share "would be a modest boost from the $62.66 at which Knight Ridder closed regular trading Thursday and well above the low $50s range, where it was before investors Private Capital Management and Harris Associates spurred sale talk," writes Phil Rosenthal in the Chicago Tribune on Friday.

It will be an anxious weekend for the entire newspaper industry, Rosenthal observes, calling Knight Ridder "the canary in the coal mine" testing the health of others.

A story in Knight Ridder's San Jose Mercury News suggests that a bid of $70 per share would likely clinch the deal. It also notes that in its annual Security and Exchange Commission filing Thursday, KR said "there can be no assurance that the exploration of strategic alternatives will result in any transaction.''

Knight Ridder is twice the size of McClatchy, but the latter has a history of buying bigger companies. Knight Ridder will not necessarily take the top offer but consider other factors. Some analysts have said that it would prefer to go with a company that produced, in its view, higher quality newspapers. If so, this might only confirm a McClatchy triumph.

Reuters had reported late Thursday that a consortium of private equity firms consisting of Bain Capital, Hellman & Friedman, Texas Pacific Group, and Thomas H. Lee Partners submitted a formal offer for Knight Ridder, according to sources familiar with the matter.

"The bid comes amid speculation that private equity bidders had been scared off by Knight Ridder's lofty share price," Reuters observed.

The Knight Ridder paper in San Jose, the Mercury News, meanwhile, observed, "A bid was expected from MediaNews, but whether it had submitted an offer by the end of the day, and what form its offer would take, could not be determined. Earlier in the day, a source familiar with MediaNews said the situation was still fluid.

"One early entrant in the bidding, a consortium of private equity companies led by The Blackstone Group, did not submit a bid."

Knight Ridder's board is under pressure to take the highest bid, Deutsche Banc Securities analyst Paul Ginocchio told MarketWatch.

If McClatchy does win, it would create a difficult situation in Minnesota. The chain already owns the Star-Tribune in Minneapolis and Knight Ridder runs the adjacent St. Paul Pioneer Press.

An article in today's Star-Tribune observes, "Industry analysts remain divided on whether McClatchy would be forced to sell the Pioneer Press because of antitrust concerns. Some believe there is not enough overlap between the two markets to force McClatchy to sell. If McClatchy were to keep St. Paul, it likely would consolidate certain operations, such as distribution and circulation, with the Star Tribune, analysts said." Layoffs would certainly be likely.

One portfolio manager said that Knight Ridder is making a mistake by not selling the company in pieces. Les Satlow, a portfolio manager with Cabot Money Management told MarketWatch Knight Ridder?s board was acting ??arrogant?? by insisting on selling the company in its entirety.