McClatchy Buys Knight Ridder, But Will Sell 12 Papers, Including San Jose and Two in Philadelphia
Tony Ridder, Knight Ridder CEO
From: http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1002157391
By Greg Mitchell
Published: March 13, 2006 10:05 PM ET updated Monday
NEW YORK 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."
Response from San Jose Mercury News employees
From: http://www.savethemerc.com/
Recent days have brought dizzying change to the San Jose Mercury News. In quick succession, the Mercury's owner, Knight Ridder, was sold to the McClatchy Co. which has announced it intends to sell the Mercury News.
The pending resale puts the paper's ability to cover the community at risk. An owner more interested in increasing profits than in fulfilling the paper's responsibility to the community likely would impose severe cutbacks in news coverage.
Please join the employees of the Mercury News and voice your support for preserving this vital civic institution.
WHERE WE STAND
We — the writers, editors, photographers, advertising sales staff and other employees of the Mercury News — are worried about the future of our newspaper.
Several large shareholders forced Knight Ridder Inc. to sell its 32 newspapers. In announcing its purchase on March 13, the new owner, the McClatchy Company, said that it does not intend to buy the Mercury News. It and 11 other former Knight Ridder papers are still for sale. Their fate remains very much in doubt.
We are apprehensive that a buyer who does not understand our community and value the journalism that we provide will adopt what one Wall Street analyst termed a "scorched earth" policy. Under this scenario, substantial cost-cutting and smaller staffs would follow a sale. The impact on our community of readers and advertisers would be severe.
We believe that newspapers should make money for their owners and investors; the Mercury News does. But we believe the purchase of our newspaper company must not damage our newspaper's long-term responsibility to the community we serve. We believe that newspaper owners must balance their expectations for profits with their civic obligation to provide robust news coverage.
We are guided by the belief that a vibrant daily newspaper is indispensable to the health, harmony and prosperity of a community. Our commitment to excellence in journalism remains strong. Silicon Valley deserves a daily newspaper equal to the ambitions and accomplishments of its readers.
Our industry faces challenges. The means of communicating with readers are changing rapidly. We would welcome an owner who understands the opportunities of the Internet and the challenges it poses for newsprint, and is willing to make long-term investments in personnel and in new technologies.
After decades of distinguished service to the nation, Knight Ridder no longer exists. We at the Mercury News look forward to working with a buyer who values our work and is willing to match our long-standing commitment to quality journalism. We ask readers, leaders and advertisers in Silicon Valley to insist that any prospective owner meet the community's equally high expectations.
Readers speak
Should employees buy Knight Ridder papers? Personally, I'm rooting for 'em. ... Why not with the workers? It would certainly be a welcome development to see people who actually work in the journalism business have some real influence over their place of work. They understand that newspapers have to be more than black ink on dead trees.
--Craig Newmark
founder Craig's List
As a long time resident, subscriber and valley employee, I have always valued the Merc for its coverage of World, Local and Business news.
--Richard Levin, Sr. Manager,
National Semiconductor, Santa Clara
The Mercury News has distinguished itself as an essential institution in this community. The prospect of a weakened, stripped-down newspaper controlled by disinterested out-of-town owners is simply not acceptable.
--George Sampson
News Director, 1590 KLIV, San Jose
We are afraid of the Merc becoming just another cookie-cutter paper of some conglomerate that has an agenda other than presenting the news to us fully. We need to have the critical thinking and investigative reporting that has distinguished the Mercury News above others.
--Forrest and Shirley Rieben
San Jose subscribers
since 1986
No News Is Bad News
Center for American Progress, Eric Alterman
Commentary from: http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=1487391
The Project for Excellence in Journalism's third annual "State of the News Media 2006" report couldn't have been released at a more fortuitous time. With the ongoing drama over newspaper chain Knight Ridder's corporate investors forcing the company to offer itself on the auction block and this week's news that McClatchy Co. bought it for $6.5
billion, a new round of speculation about the health of the newspaper industry is well underway. Yet another source of journalistic anxiety arose when McClatchy immediately announced that it was selling off 12 of the 32
papers it inherited from Knight Ridder and the little-known fact reported by the San Jose Mercury News (one of the papers to be dumped by McClatchy), that eight of the 12 papers to be sold are union shops.
While all this took place after the PEJ study was completed, the congruence of the two events
simply added to an increasing sense of foreboding about the industry for nearly everyone who cares about its future. The study itself, which tracked data and a variety of public polls throughout the year (while studying the
content of newspapers, magazines and Internet magazines for a single news day, May 11, 2005) is an illuminating look into the bowels of the American media machine. For the day that specific content was tracked, PEJ confirmed
something that many close observers certainly suspected: More and more news outlets are crowding themselves around fewer and fewer stories, hitting the public over the head with them until the blood flows from the cranium. Finally, we face the fact of a progressively more confused and fractured public sphere, made up of individuals who have lost the old, binding ties
of a shared cultural experience of having trusted news sources in common. Down this road lies a loss of what binds us together as democratic citizens, leaving only consumers in its wake.
Here is the perspective on McClatchy from a working journalist friend at a
midsize McClatchy newspaper in the South.. I thought some of you might be
interested.
Well -- speaking as a McClatchy employee -- I think it's generally a terrific company. Good journalism values and they make money at the same time. And they do it by investing in the papers. It'll be a godsend for the readers in those cities.
But MClatchy has very strict criteria for what papers they buy -- they like markets without competition that are adding homes.
Essentially, the company cottons to places with lots of cul de sacs. They crunch a lot of household growth numbers to see whether the market can expand. That's the reason we didn't buy San Jose, even though we own Sacramento, Fresno and Modesto. San Jose is locked in physically and so no more homes are being built.
The K-R papers that we are buying are in markets like the ones we are in now, and have similar profit margins. I think it's a bummer we shed the others, but that's business. I would have like to have kept Philly, just for the prestige of reviving it, but that's why I'm not in the corner office, I guess. I'm not sure the union question comes into it. Minneapolis, which we own, has the union. Maybe they don't want to repeat the hassle of dealing with it. I'm sure unions in Philly are a little more serious than those in Minnesota.
The biggest question to me is the fate of K-R's Washington operation, which is stellar and quite aggressive. They've been in the forefront of reporting on the war and the causes thereof. Also, there are eight or 10 foreign buros. We've said there will be no layoffs. But McClatchy doesn't have any experience with being a player on the national level, and K-R certainly does. So I hope we don't screw that up.
Players Big and Small Are Sifting Through Pieces of Knight Ridder
From: http://www.nytimes.com/2006/03/27/business/media/27mcclatchy.html?pagewanted=1&_r=3
By KATHARINE Q. SEELYE
Published: March 27, 2006
With the McClatchy Company set to accept bids, starting as early as tomorrow, for the 12 Knight Ridder papers it is selling, some of the potential buyers are looking at the country as if it were a giant chessboard.
Craig Dubow of Gannett and Dean Singleton of MediaNews are pondering some of the 12 papers McClatchy is selling.
The goal is not to topple a king but to become one — a king of each regional market where potential buyers already own newspapers and can achieve economies of scale by buying pieces of Knight Ridder.
"It's a delicate game of strategy right now," said Thomas Russo, a partner at Gardner Russo & Gardner, a capital management firm in Lancaster, Pa.
The sales are likely to lead to a further consolidation of the newspaper industry around the country. During the last decade or so, newspapers have been "clustering," that is, buying papers near one another, allowing them to save money by combining their advertising sales and printing operations and, in some cases, their news divisions.
Analysts said that clustering was a major motivation for many of the newspaper companies that are now interested in pieces of Knight Ridder. To achieve their ends, these companies could go into partnerships or even swap other papers.
According to analysts, the newspaper companies that are potential buyers include the following:
¶The MediaNews Group, Dean Singleton's company, which already owns nearly two dozen papers in California and will almost certainly be interested in at least 3 of the 12 Knight Ridder papers: The San Jose Mercury News, The Contra Costa Times and The Herald of Monterey County.
¶Gannett, the nation's biggest newspaper publisher with operations in 41 states, including Indiana and Ohio, which may want The News-Sentinel in Fort Wayne, Ind., and The Akron Beacon Journal.
¶ Lee Enterprises, which owns dailies in the Midwest and could be looking at The Pioneer Press in St. Paul as well as The Duluth News Tribune, The Aberdeen American News in South Dakota and The Grand Forks Herald in North Dakota.
¶Forum Communications of Fargo, N.D., which may also be interested in the papers in Aberdeen, Fort Wayne and Duluth.
A single company buyer is less obvious for the two Knight Ridder papers in Philadelphia, The Inquirer and The Daily News. Gannett owns The News Journal in Wilmington, Del., and The Courier-Post in nearby Cherry Hill, N.J. At the same time, Mr. Singleton has a reputation for being attracted to bigger newspapers in difficult markets.
Finally, there is The Times Leader in Wilkes-Barre, Pa., which has direct competition. The paper reported yesterday that Times-Shamrock, which owns The Times Leader's competitor, The Citizens' Voice, would be a logical suitor but that if Times-Shamrock did buy the paper, it would probably have to close one because of antitrust concerns.
One suitor — Yucaipa Companies, a private equity firm working with the Newspaper Guild, which represents employees at many of the 12 papers — is interested in buying all 12. Yucaipa, which says it will make a bid tomorrow, has been in a dispute with McClatchy over getting all the information that it says it needs to make an informed bid.
Yucaipa is not the only bidder lacking financial information. McClatchy issued a statement yesterday saying that it had not provided such information to any of the "dozens of parties" who have contacted McClatchy since the company won the bidding for Knight Ridder and put 12 of its papers on the market.
Local investors in several of the 12 cities have emerged as possible buyers for papers in their own markets. But McClatchy said that the only potential buyers to receive information so far were those that had signed nondisclosure forms leading up to the bidding for all of Knight Ridder, and that McClatchy had given them nothing further. This could complicate the process for some.
"It takes the market some time to get to know each paper as an individual entity," said Susan Casey, an investment banker at Houlihan Lokey Howard & Zukin, based in Los Angeles.
It also puts newspaper companies like MediaNews and Gannett at a distinct advantage, because they were the only ones big enough to pursue Knight Ridder when it was intact. On March 13, McClatchy agreed to buy Knight Ridder for about $4.5 billion in cash and stock.
Analysts have estimated the total value of the 12 papers at more than $1.4 billion and said the publications could probably bring a higher price individually or in small bundles than as a whole....
As of last year, only 45 cities in the United States had more than one daily newspaper, according to The Editor & Publisher International Yearbook. These include 12 with joint operating agreements aimed at allowing both papers to survive while avoiding antitrust challenges.
"The antitrust people never seemed to catch on that suburban monopolies act in the way that urban monopolies do," said John McManus, director of GradetheNews.org, at the School of Journalism and Mass Communications at San Jose State University.
He said that if Mr. Singleton bought The San Jose Mercury, for example, it would be comparable to one person's owning all the grocery stores around San Francisco, "and there would be no reason for them to compete on either price or quality."