By: Greg Mitchell Early Monday, Knight Ridder and McClatchy Co. confirmed the deal revealed by The New York Times late Sunday. The Knight Ridder board has accepted the McClatchy buy offer of $4.5 billion.
McClatchy said it will now sell 12 KR papers, including the two Philadelphia papers and former flagship San Jose Mercury News. The company said in a statement that these papers are located in cities that "do not fit the company's longstanding acquisition criteria, chiefly involving growing markets."
The other papers to be divested by McClatchy are: the Akron (Ohio) Beacon Journal; Wilkes Barre (Pa.) Times Leader; Aberdeen (S.D.) American News; Grand Forks (N.D.) Herald; Ft. Wayne (Ind.) News-Sentinel; Contra Costa (Calif.) Times; Monterey (Calif.) Herald; and Duluth (Minn.) News Tribune. The St. Paul (Minn.) Pioneer Press is to be sold due to anticipated anti-trust concerns involving McClatchy's Star Tribune in Minneapolis.
Gary Pruitt, the McClatchy chairman and CEO, said in a statement, "These are terrific publications but simply do not fit with our long-standing acquisition and operating strategies."
Pruitt said in a letter sent to McClatchy employees this morning that the company has no plans to eliminate jobs at its newly acquired newspapers.
"We don't plan any across-the-board layoffs at the Knight Ridder papers we retain, though there are some job duplications on the Knight Ridder corporate staff and at Knight Ridder Digital [Knight Ridder's Internet operations] that will have to be addressed," Pruitt wrote.
McClatchy will be adding two Knight Ridder directors to its board. The transaction is subject to customary terms and conditions, including approval by the KR shareholders and is expected to close in three to four months. This morning, McClatchy's stock fell 61 cents to $52.45, and Knight Ridder rose 35 cents to $65.35.
"Opportunities like this come perhaps once in a company's lifetime," said Pruitt, "and we're thrilled to have this chance to extend McClatchy journalism and our proven newspaper operations to 20 high-quality newspapers in high-growth markets. Our two companies operate in the finest traditions of American journalism, devoted to independent, public interest reporting, and the highest ethical values.
"Combining the two creates a company particularly well-positioned to lead the way in a changing media landscape. It's truly a chance for McClatchy to do more of what it does best. ...
"This deal is a vote of confidence in the newspaper industry as well as our mission-driven commitment to public interest journalism," Pruitt added.
Veteran newspaper analyst John Morton told Reuters this morning, "This is a bad time to sell a newspaper company -- Knight Ridder's board of directors should not have done it. ... "This thing is being sold at a fire-sale price."
After the purchase of Knight Ridder and the sale of the 12 papers, McClatchy will be left with 32 daily newspapers and roughly 50 non-dailies.
Knight Ridder Chairman and CEO Tony Ridder said in a statement, "Knight Ridder and McClatchy share many similar -- and important -- values, most notably a commitment to quality journalism, fairness to our employees and service to our communities. The joining of so many Knight Ridder newspapers under McClatchy's banner will enable them to continue to flourish in an environment of excellence and integrity. This transaction, which represents an excellent outcome for shareholders, also concludes a period of considerable uncertainty for many of Knight Ridder's valued and dedicated employees, and I thank them for their perseverance through it.
"For the 12 newspapers that will be sold, the uncertainty is not over and I regret that very much."
Clark Hoyt, Knight Ridder's Washington editor, told E&P this morning McClatchy plans to keep KR's Washington bureau: "McClatchy values this operation and intends to keep it. ... McClatchy is an excellent company, very much like Knight Ridder. It is a good outcome that we will stay with McClatchy." The bureau boasts 110 staffers between the Knight Ridder/Tribune News Service and the Washington bureau, including 16 national correspondents, nine editors, and 13 reporters for different newspapers.
A consortium of private-equity buyout firms that included Texas Pacific Group, Bain Capital, Thomas H. Lee Partners, Hellman & Friedman, and Oak Hill Partners had also bid on Knight Ridder. Gannett Co. and MediaNews Group Inc., a privately held newspaper publisher based in Denver, had also expressed interest in recent weeks. In the end, neither Gannett nor MediaNews made a firm offer, sources say. The deal involves $4.5 billlon in cash and stock, according to a McClatchy release on Monday. It will also assume $2 billion in KR debt.
"We strongly believe that good journalism is good business, but that doesn't mean business as usual," Pruitt added in his statement. "We have the opportunity to apply tested, successful management in some of the most promising markets in the country. Although audiences get news in many new ways today, the appetite for independent, useful information is greater than ever, and the opportunities for a news company that meets these needs is unlimited."
In an interesting twist, the effort by the newspaper guild to purchase a few pieces of the Knight Ridder empire no longer seems so far-fetched. Most of the 12 KR papers to be sold line up with the the nine newspapers targeted by the Guild's "worker-friendly plan." They are the Philadelphia Inquirer and Daily News, San Jose Mercury News, St. Paul Pioneer Press, Akron Beacon Journal, the Grand Forks Herald Monterey Herald, and Duluth News Tribune.
The Associated Press noted: "McClatchy has punched above its weight before, sealing a $1.4 billion deal in 1997 to acquire the Cowles Media Co., the parent company of the Star Tribune in Minneapolis. This deal, however, represents a much bigger bite for the company and its highly regarded chief executive, Gary Pruitt.
"While McClatchy is smaller than Knight Ridder, it has a strong balance sheet and is admired for both its business acumen as well as its commitment to quality journalism. McClatchy had long bucked an industry trend of circulation losses, posting annual gains in circulation for 20 years in a streak that finally ended last year.
"Acquiring Knight Ridder would mark a break from McClatchy's usual pattern of investing in growing markets. Knight Ridder's papers in both San Jose and Philadelphia have both struggled in recent years.
An article in the Star Tribune earlier raised the issue of whether McClatchy, in the event of the deal, would have any money left to invest in the papers: "Some analysts believe a sizable new debt load would leave McClatchy with little option but to cut jobs and expenses companywide, sell off some papers or both.
"'The question is, how much money will [McClatchy] have left over to invest in these newspapers if it needs so much cash to pay down this debt?' asked James Naughton, former executive editor of the Philadelphia Inquirer.'"
Weighing in on the deal this morning, a group of Knight Ridder alumni reacted positively to the McClatchy acquisition but expressed concern for the smaller markets. In a statement released by Naughton, they said:
"We're pleased that Knight Ridder chose McClatchy as the successful bidder for the company, but dismayed that McClatchy has said it will put growth markets ahead of community responsibility. Give Tony Ridder credit. When his back was to the wall, he opted to turn his company over to another company with a reputation for quality journalism.
"Knight Ridder alumni wish McClatchy well and we would be glad to offer counsel, support and whatever assistance might be useful as McClatchy digests the news organizations to which we gave our careers. We particularly would welcome an opportunity to encourage McClatchy to reexamine its intention to jettison 12 of the newspapers it is acquiring.
"McClatchy's reputation would be enhanced by retaining newspapers which may not produce margins as high as McClatchy historically has produced but which are vital to their communities."
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