The newspaper you are now reading suddenly finds itself in the midst of a fast-moving saga about its future and that of its industry.
The story broke before the market closed on Tuesday. That's when Bruce Sherman, CEO at the Florida-based Private Capital Management (PCM) unit of Legg Mason, disclosed to securities regulators the extent of his dissatisfaction with the financial performance of Knight Ridder Inc.
Knight Ridder, the nation's second-largest newspaper chain, is the parent company of the St. Paul Pioneer Press.
In a letter to Knight Ridder Chairman and CEO Tony Ridder, Sherman urged the company's directors to "now aggressively pursue the competitive sale of the company."
So far, Knight Ridder has given scant official reaction to Sherman's request, saying only that it "takes its fiduciary responsibilities seriously and will respond in due course."
But it is clear that Sherman will have much to say about the outcome of the chain of events he has set in motion. It's also certain that the result will be important for the Twin Cities area.
Sherman is not just any shareholder. His firm has a highly successful track record as a "value investor" – choosing stocks based on fundamentals such as earnings prospects.
Almost overnight, PCM has become the most important stockholder in the newspaper industry.
PCM is by far the largest stockholder at Knight Ridder, with 19 percent of the company's stock. What's more, it holds significant stakes in at least five other newspaper companies.
Most significant for the Twin Cities, PCM holds 37 percent of McClatchy, the corporate parent of the Minneapolis-based Star Tribune. Even so, the existence of a family class of stock there has enough voting power to significantly reduce Sherman's clout.
And let's stop on that point for a moment. The New York Times Co. and Dow Jones also enjoysimilar cushions from the pressures of Wall Street. They publish the two papers that many view as the best in the country: the New York Times and the Wall Street Journal. But their stocks have performed worse than Knight Ridder's, according to a five-year comparison by the Leuthold Group in Minneapolis.
But Knight Ridder does not have such a stock cushion, so it is more vulnerable to attacks from Wall Street, and that's one reason it's under the gun now.
Despite the two-class stock structure at McClatchy, PCM is now a very important media player here. Significantly, it also has become the largest single shareholder at Gannett, publisher of USA Today, with a 6 percent stake. Gannett also owns KARE Channel 11 and the St. Cloud Times, which circulates at the outer edges of the Twin Cities area.
In some ways, PCM's emergence here is a throwback to the days before the 1974 merger that created Knight Ridder. Then, the Ridder family, which owned the Pioneer Press, sold off its interest in the WCCO radio-TV operation here to allow the merger that created Knight Ridder to proceed without regulatory delays. That sale effectively ended close interlocks between the two dominant Twin Cities daily newspaper operations, Ridder and the then-owners of the Star Tribune, because both had large stakes in WCCO.
PCM's major stakes in both Twin Cities newspaper companies here raise the possibility that it could push for the merger of the metro dailies by urging McClatchy to buy the Pioneer Press as part of a breakup of Knight Ridder. Indeed, in his filing with regulators this week, Sherman expressed interest in what the breakup value of Knight Ridder might be.
A purchase of the Pioneer Press by McClatchy, if allowed by antitrust regulators, would for all intents and purposes mark the end of the Pioneer Press and of daily newspaper competition in the Twin Cities. This area is one of the few remaining competitive newspaper markets in the nation.
Economically, this would be very advantageous to McClatchy because it would hand it monopoly-pricing power in this market. Advertising likely would become more expensive for businesses in a one-newspaper town.
Fred Speece, a value investor at the Speece-Thorsen Capital Management firm in Minneapolis, watches newspaper stocks and is active in community affairs in the Twin Cities.
Speece speculates that Sherman could suggest to McClatchy board members that they buy the Pioneer Press, or that perhaps he already has – as part of a strategy to break up Knight Ridder and realize value for PCM.
But would that be a good thing for the Twin Cities?
"There's a community cost," says Speece. "This is a case where what would be good for shareholders would not necessarily be good for the community."
I admit to an obvious bias, given my status as a columnist here. But having had the privilege of writing about the business community here for the last 24 years, I am familiar with and proud of the long role that the Pioneer Press has played in Minnesota.
It traces its roots back to the state's first newspaper, established in 1849. It is also one of the oldest companies in St. Paul and one of the largest in the city's downtown, with annual sales of more than $100 million and just under 1,000 full- and part-time employees.
Despite the moves of younger readers to the Internet, newspapers remain an important industry. History shows that when new media systems come along, old ones don't die – they just change.
It's never easy to change, but it would be well to remember that whatever happens with the Knight Ridder situation, newspapers are still the "Fourth Estate." Newspapers remain at the heart of a free press, which in turn has been at the core of the system of checks and balances that has made the country work since the pamphleteers of the American Revolution.
I know that sometimes it may not seem that newspapers are anything more than just a business. But we play an important role as a watchdog of those in power. Doing so has become an increasingly difficult balancing act between satisfying bottom-line oriented owners and serving the public at large.
But know this: We're not just widget factories.
Dave Beal can be reached at dbeal@pioneerpress.com or 651-228-5429.
