March 14, 2006 McClatchy to Resell 12 Papers It's Buying By KATHARINE Q. SEELYE NY Times
http://www.nytimes.com/2006/03/14/business/media/14paper.html?_r=1&oref=slogin&pagewanted=print There was both joy and despair across the Knight Ridder newspaper chain as employees learned that the McClatchy Company, which announced plans yesterday to acquire the company's 32 papers, would promptly sell 12 of them. Those at the Knight Ridder papers being kept by McClatchy including The Miami Herald and The Charlotte Observer will be working for a family-controlled business known for disciplined management and solid journalistic standards. "This is the absolute best outcome we could have hoped for," said Carol Rosenberg, a reporter at The Miami Herald, the largest paper to be retained. "It's a newspaper family with a tradition of journalism, not a corporate chop shop." But those at the 12 papers to be sold including The Philadelphia Inquirer and The San Jose Mercury News now face continued uncertainty about who will own them, and the prospect of a less desirable owner than the one they had expected. Rick Nichols, The Inquirer's food columnist and a 27-year veteran of the paper, said the staff was deflated, as if it "had been orphaned and told that its replacement parent didn't even want it." Stu Bykofsky, a columnist at The Philadelphia Daily News, which is also one of the 12 papers back on the block, said he understood that of all the entities that had expressed interest in Knight Ridder, McClatchy was the best. He was disappointed the company was selling the Philadelphia papers so quickly. "It's like death by drowning instead of death by fire," Mr. Bykofsky said. "McClatchy, which was portrayed as this savior, will turn around and sell us to the highest bidder. That's not a confidence-builder for us." McClatchy, which owns 12 papers including the Bee papers in Central California, The Star Tribune in Minneapolis and The News & Observer in Raleigh, N.C. will become the nation's second-biggest newspaper company, behind Gannett, if it completes the $4.5 billion acquisition. The Gannett Company, which publishes USA Today, did not make a bid for Knight Ridder, but analysts said it remained a possible buyer for some of the 12 papers that McClatchy does not want. Other possible buyers include William Dean Singleton, chief executive of the MediaNews Group, which publishes The Denver Post and The Salt Lake Tribune, and who presided over the shutdown of The Houston Post. Eight of the 12 papers are unionized, which could make them less desirable acquisitions. The Newspaper Guild has also expressed interest in buying them. Analysts said Mr. Singleton, who has taken on difficult markets like Detroit, was likely to be in strong pursuit of at least some of the papers, particularly in California, where he already owns several small papers as well as The Los Angeles Daily News. He visited some Knight Ridder newsrooms in the last several weeks but did not make a final bid for the company. "We believe Gannett and MediaNews Group will be buyers in some of these newspaper divestitures," a financial analysis by J. P. Morgan stated. "The outcome reinforces that Gannett is a highly disciplined acquirer." Gary B. Pruitt, chairman and chief executive of McClatchy, said yesterday that he was open to all possible combinations of sales, and might sell some papers individually or several together. He also said that he had already been contacted by potential buyers, whom he did not identify and that he wanted to sell the 12 papers on the same day sometime this summer that he closes the deal to acquire the 20 other Knight Ridder papers. "McClatchy would not operate those papers for even one day," he said. Mr. Pruitt said he was confident that he could sell the 12 papers and that they would fit into the strategies of other newspaper companies, confidence that analysts said suggested that Mr. Pruitt might already have lined up buyers for some or all of them. Mr. Pruitt said he was aware of concern among employees that if a private equity firm were to acquire the papers, it would most likely strip them down and eventually resell them. He did not rule out any potential buyers, but in an indication that he would not sell to someone loathsome to journalists, he joked that "Slobodan Milosevic died over the weekend, so he's out." "We care who we sell to," Mr. Pruitt said, adding that "obviously price will be an important factor, but it won't be the only factor." He said "speed of execution will matter; we don't want to prolong this." "We think newspaper companies are out there that can do well by these papers," he said. Nonetheless, Wall Street reacted negatively to news of the sale. Knight Ridder closed down $1.08 in trading yesterday, at $63.92, and McClatchy closed down $1.51, at $51.55. Because of the decline in McClatchy shares, the value of the deal to Knight Ridder shareholders declined to $66.38 from $67.25. A spokesman for P. Anthony Ridder, the chairman and chief executive of Knight Ridder, said Mr. Ridder was disappointed that McClatchy was not keeping the chain intact. "He's upset about the dissolution of the company that he has spent more than 40 years with," said Polk Laffoon, the spokesman. "It's been very difficult for him emotionally to see the company sold and particularly now to see it not sold as a whole." Potential buyers for the 12 papers on the block were the talk of the newsrooms. "I think people are generally pretty terrified of Singleton," said Dominic Papatola, the theater critic at The Pioneer Press in St. Paul, who has worked there since 1997. He said he did not see a private equity firm "coming in because McClatchy has cherry-picked the most lucrative titles." "The chains that took a pass on us whole," Mr. Papatola said, "may find that what's left is less desirable." Goldman Sachs, which advised Knight Ridder on the sale, said in a research report that McClatchy's acquisition made strategic sense. But, Goldman said, "many questions remain on the financial implications of the deal," in part because the sale price of the 12 papers is unknown. Wall Street will be watching closely, Goldman said, until McClatchy with shares already down 28 percent over the last year demonstrates it can increase profitability at the 20 papers it is buying and sells the 12 at a price close to what it paid per share for Knight Ridder. Under the terms of the deal, Knight Ridder shareholders are to receive $40 in cash and 0.5118 of a McClatchy Class A share for each of their shares. To finance the deal, McClatchy secured commitments for a $3.75 billion loan from J. P. Morgan Chase and Banc of America Securities, according to the companies' merger agreement. The agreement, filed with regulators late yesterday, seemed to hold open the possibility of Knight Ridder's accepting a higher offer should one come along before its deal with McClatchy is concluded. If the deal falls apart, McClatchy would receive a $171.9 million termination fee from Knight Ridder. McClatchy is moving quickly to meet with Knight Ridder employees. Mr. Pruitt has begun making a barnstorming tour of his new papers, starting today with a visit to The Miami Herald. Howard Weaver, McClatchy's vice president for news, visited Knight Ridder's Washington bureau yesterday and, according to employees, said there would be "no layoffs and no shrinkage." He said McClatchy's 15-person bureau would be combined with Knight Ridder's 45-person bureau and David Westphal, McClatchy's Washington bureau chief, would succeed Clark Hoyt, Knight Ridder's Washington editor, as the senior person. McClatchy will also keep Knight Ridder's 10 foreign bureaus. But these reassurances offered little solace at the papers set for a fast resale. Mike Antonucci, a reporter at The San Jose Mercury News for 28 years, said there was so little information that it was impossible to pinpoint any single mood prevailing in the newsroom. "There are families and lives and loans and benefits and mortgages and careers on the line, and that's why we'd like the uncertainty resolved in a positive way," he said. "But we don't even know when the uncertainty is going to be resolved or how positive it is going to be." And at The Daily News in Philadelphia, there was anger at repeated assumptions by analysts that whoever bought that paper would shut it. "We have been living under anxiety and trepidation for months," said Kitty Caparella, a longtime organized-crime reporter for The Daily News. "It doesn't help that know-nothing stock analysts keep predicting the close of The Daily News." ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
