The decision by Knight Ridder's third-largest shareholder group to join the call for the San Jose company to sell itself was motivated by a sluggish stock price, and was not intended to make any grand statements about the future of the newspaper industry.
Henry R. Berghoef, portfolio manager and director of research at Harris Associates in Chicago, which owns 8.2 percent of Knight Ridder's stock, said he remains a big fan of newspapers. However, he said the company's stock price has never reached the heights he had hoped for when he began acquiring shares almost a decade ago. Knight Ridder owns the Mercury News and 31 other daily newspapers.
Although Knight Ridder has taken several steps in recent months to boost its stock price -- including job cuts, increasing its dividend and buying back its stock -- nothing seemed to move the share price. When Knight Ridder's largest shareholder sent a letter last week to the board requesting that it sell the company, Berghoef concluded that was probably the best bet for achieving the profits he originally envisioned.
``We're not trying to make any broad statement about how we feel about the newspaper industry,'' Berghoef said. ``What we're specifically looking at is a path to achieve the appropriate return for our investment.''
Knight Ridder spokesman Polk Laffoon declined to comment on Berghoef's remarks.
Missed potential
The newspaper group was rocked last week when its largest shareholder, Private Capital Management of Naples, Fla., told Knight Ridder's board it should pursue a sale because its stock hasn't lived up to its potential value. PCM owns 19 percent of the company's stock.
Two days later, Berghoef echoed that call by filing a similar letter. Knight Ridder's second-largest shareholder, Southeastern Asset Management, with 8.9 percent of the stock, has requested permission to discuss the situation with Knight Ridder's board.
The shareholder revolt that Berghoef joined last week has sparked widespread speculation about the future of the nation's second-largest newspaper group. And it's ignited a debate throughout the industry about the future of newspapers.
For Berghoef, it's simply about the stock price.
Berghoef said he began investing in Knight Ridder a decade ago because he believed the company's stock was trading at a discount relative to its ``intrinsic value.'' He likes the newspaper industry as an investment in general because it has good franchises, it's dominant in local markets, it generates lots of cash and it produces good returns -- until recently.
But even as Knight Ridder's stock fluctuated over the past year -- trading at $71.07 one year ago and as low as $52.42 -- Berghoef never felt it reached its potential. While he declined to say what he felt would be an appropriate value, in his letter Berghoef said that based on the sale of other newspaper properties, Knight Ridder should be worth more.
On Tuesday, Knight Ridder's stock closed at $61.65, giving it a market capitalization of $4.54 billion.
Berghoef said he didn't know ahead of time that PCM was planning to file its letter last Tuesday. But after considering the position, Berghoef concluded it was the right move.
Possible buyers
Speculation on who might want to buy Knight Ridder has centered on other large newspaper chains -- such as Gannett or Tribune -- or several private equity firms.
Berghoef said he is not advocating a specific buyer. And he's also not trying to argue that such a sale might improve Knight Ridder's finances or what shape the company should take down the road.
At the same time, he says his views of the future of newspapers and traditional media are less apocalyptic than many of the comments he's heard over the past week.
``I think all traditional media are facing challenges right now,'' he said. ``By the same token, these are fairly good businesses. They're not as dominant as they used to be. But it's also my view that people are too pessimistic. What did Mark Twain say? `Reports of my death have been greatly exaggerated.' ''
Contact Chris O'Brien at cobrien@mercurynews.com or (415) 477-2504.
