The Ten Month Beat

An account of the ten months at the graduate school of journalism for the class of 2006.


it could have been worse, people...

McClatchy Looks Like the Favorite
To Buy Knight Ridder at Auction
March 10, 2006
McClatchy Co. appeared yesterday in the pole position to purchase the Knight Ridder Inc. newspaper chain, people familiar with the matter said, offering a combination of cash and stock valued at more than $65 a share, or more than $4.35 billion.

Bids for Knight Ridder were due yesterday at 5 p.m. EST, and, as in any auction, the situation was fluid and subject to change, even past the stated deadline. But a consensus was building that McClatchy was the favorite, as it appeared MediaNews Group Inc. was fading from the scene and a large private-equity group including Texas Pacific Group and Thomas H. Lee Partners was showing an indication of interest -- albeit at a lower, all-cash price.

McClatchy publishes the Star Tribune in Minneapolis, the Sacramento Bee and other papers. Knight Ridder, the nation's second-largest newspaper publisher by circulation behind Gannett Co., publishes 32 papers, including the Philadelphia Inquirer and Miami Herald.

Knight Ridder's board will have to weigh a complex mix of price, certainty of closing a deal and journalistic continuity as it examines the bids. With the auction entering its final stages, there could well be a surprise development or a dark-horse bidder that emerges.

Knight Ridder spokesman Polk Laffoon declined to comment. McClatchy spokeswoman Elaine Lintecum also wouldn't comment.

The auction has so far drawn a tepid response from investors.

"I'm absolutely on the fence," said Thomas A. Russo, partner in Gardner Russo & Gardner, a Lancaster, Pa., investment firm that holds 6.3% of McClatchy's Class A stock.

He said McClatchy's own low price -- its stock closed yesterday at a 52-week low -- makes it tempting for the Sacramento, Calif., company to use its cash to buy back its own shares instead those of another company. In 4 p.m. New York Stock Exchange composite trading, shares of McClatchy fell 47 cents to $51.93. Shares of Knight Ridder, based in San Jose, Calif., rose 20 cents to $62.66 on the Big Board.

But McClatchy has almost no debt, putting it in a strong position to borrow heavily to make a big acquisition. This is exactly what it did in 1997, when the company surprised Wall Street by agreeing to buy Cowles Media Co., publisher of the Star Tribune, for about $1.4 billion in cash and stock.

McClatchy Chief Executive Gary Pruitt was criticized at the time for paying such a high price for the paper. But he was able to use the cash generated by the business to quickly pay down debt.

Merrill Lynch & Co. analyst Lauren Rich Fine, in a note to investors, estimates that an all-cash deal for Knight Ridder would actually add to free cash flow per share -- a requirement Mr. Pruitt has identified as being necessary for an acquisition by McClatchy.

If the bids for Knight Ridder are insufficient, there remains the possibility that Knight Ridder's board could consider a recapitalization and engage in a large share-buyback program. At year's end, the company had 66.9 million shares outstanding. Its market capitalization is $4.21 billion.


Post a Comment

<< Home