A trio of private-equity firms has formed an alliance to examine purchasing newspaper publisher Knight Ridder Inc., according to people familiar with the matter.
The alliance -- consisting of the Blackstone Group, Providence Equity Partners Inc. and Kohlberg Kravis Roberts & Co. -- is in early stages of preparation, these people say. But the buyout firms remain wary that the $4 billion market capitalization is too high for the publisher, which owns the Miami Herald, the Philadelphia Inquirer and 30 other daily newspapers.
Nonetheless, the formation of the consortium represents a small but telling sign of interest for an auction that has been expected to be a difficult one for the San Jose, Calif., company. Concerns about the health of both display and classified advertising -- increasingly encroached upon by Internet-driven media -- have led many to believe the company will be hard-pressed to find a buyer.
Some potential financial buyers say that with a new management team, there could be significant upside and improved revenue for the chain. In addition, the economics for a financial buyer differ from those of an industry buyer. That is because the private-equity firms are willing to put far more debt on their prey than industry buyers, concerned with maintaining a high rating, are willing to tolerate. While debt capital markets recently have begun to impose stricter terms and higher pricing on acquisition finance, both the banks and the bond markets remain relatively robust.
In a reflection of just how much money private-equity firms have in their coffers, other private-equity firms also are looking but haven't got as far as forming another group.
Knight Ridder will get an initial taste of the interest Dec. 9, when first-round bids are due, according to people familiar with the matter.
Blackstone and Providence Equity took a 40% stake in family-owned newspaper company Freedom Communications Inc. in 2003. Blackstone also was in the running for Pulitzer Inc., which eventually was sold for $1.5 billion to newspaper publisher Lee Enterprises Inc.
A spokesman for Knight Ridder didn't respond to requests for comment.
Private-equity players have been considered the most-likely participants in the Knight Ridder auction. The company was put into play when its largest shareholder, Private Capital Management LP, sent a letter to Knight Ridder's board Nov. 1 urging it to "aggressively pursue the competitive sale of the company."
Write to Dennis K. Berman at dennis.berman@wsj.com, Henny Sender at henny.sender@wsj.com and Joseph T. Hallinan at joe.hallinan@wsj.com
