McClatchy Co has reached a deal to buy Knight Ridder Inc, the second-largest newspaper publisher in the United States, for about $4.5 billion in cash and stock, the companies announced Monday. McClatchy will also assume about $2 billion in Knight Ridder's debt, the Associated Press (AP) reported. The catch is McClatchy plans to sell 12 of Knight Ridder's 32 newspapers.
The transaction, which had been expected, largely ends several months of uncertainty for Knight Ridder, which had been forced to explore a sale by its largest investors, who were frustrated with the company's stock performance. Knight Ridder chairman and CEO Anthony Ridder said in a statement that the "uncertainty is not over" for the 12 newspapers that will be sold, "and I regret that very much."
McClatchy plans to sell 12 newspapers, including the Philadelphia Inquirer, the Philadelphia Daily News and the San Jose Mercury News, since those papers do not fit with its longstanding criteria of buying newspapers in growing markets. McClatchy will also sell the St Paul Pioneer Press, in anticipation of antitrust concerns that would arise out of McClatchy's ownership of the Star Tribune in the adjacent city of Minneapolis.
Following the deal and the sale of the 12 Knight Ridder papers, McClatchy will end up with 32 daily newspapers and roughly 50 non-daily publications, making it the second-largest newspaper publisher in the US after Gannett Co, publisher of USA Today.
The deal marked the latest expansion beyond its California roots for McClatchy, a smaller but highly regarded newspaper company based in Sacramento. In 1997 the company paid $1.4 billion to acquire the parent company of the Star Tribune, Cowles Media Co, and before that it acquired the News & Observer in Raleigh, the Anchorage Daily News in Alaska, and the News Tribune in Tacoma.
The deal values San Jose-based Knight Ridder at $67.25 per share, including $40 per share in cash and 0.5118 of a share of McClatchy's Class A stock. The valuation is based on Friday's closing price of $53.24 for McClatchy shares.
McClatchy said it will finance the transaction with $3.75 billion in bank debt, for which it has already received commitments from lenders. McClatchy's controlling shareholders have already approved the deal, but it still faces approval from Knight Ridder shareholders. McClatchy plans to add two Knight Ridder directors to its board.
In addition to the papers in Philadelphia, San Jose, and St Paul, McClatchy also intends to sell the Akron Beacon Journal in Ohio; the Times Leader in Wilkes-Barre, Pa.; the Aberdeen American News in South Dakota; the Grand Forks Herald in North Dakota; the News-Sentinel in Ft. Wayne, Indiana; the Contra Costa Times and the Monterey County Herald in California and the Duluth News Tribune in Minnesota.
The sale of the 12 papers will help pay down debt used to finance the deal and help minimise cost-saving measures, McClatchy CEO Gary Pruitt said in an interview on CNBC-TV. "We have no plans for layoffs at the newspapers," Pruitt said. "There will of course be some consolidation at corporate offices and some Internet operations. But we plan to maintain, sustain and further the journalism at these newspapers."
The deal will expand McClatchy's presence in the Carolinas with the addition of the Charlotte Observer. In addition to the News & Observer, McClatchy also owns papers in South Carolina. McClatchy beat out a rival bid from a consortium of private-equity buyout firms that included Texas Pacific Group, Bain Capital, Thomas H. Lee Partners, Hellman & Friedman and Oak Hill Partners.
Many of the newspapers up for sale line up with the nine newspapers targeted by the Newspaper Guild's "worker-friendly plan." The guild has lined up the Yucaipa Companies to finance a deal to help employees buy nine Knight Ridder papers through an Employee Stock Ownership Plan (ESOP). If the Guild is successful, the deal would probably be structured with Yucaipa fronting some of the money for the papers.
"When it comes time to the guild's participation, money talks," said industry analyst John Morton last week about the possible success of the guild's plan. "It really becomes a question of what sort of corporation the fuild is willing to engage in."
According to a MarketWatch analysis, McClatchy's acquisition of Knight Ridder doesn't just give the newspaper publisher access to new print markets. It also opens new doors to fast-growing Internet revenue. McClatchy's Internet strategy has centred on building online hubs for local readers and advertisers in its newspaper markets, and that will continue to be its central goal. But the Knight Ridder acquisition also offers new opportunities to tap national online-advertising spending, Christian Hendricks, McClatchy's vice president of interactive media, said in an interview.
Knight Ridder owns a one-third stake in leading job site CareerBuilder.com through a joint venture with Gannett and Tribune Co. It also operates the Real Cities advertising network, which allows national marketers to easily buy advertising in more than 100 city and regional news sites owned by Knight Ridder and McClatchy as well as companies like Media General Inc, MediaNews Group Inc and Ottoway Newspapers, a unit of Dow Jones & Co. Real Cities sites host more than 29 million visitors a month.
McClatchy hopes to hold on to the CareerBuilder stake, which Tribune Co and Gannett have the right to refuse. Pruitt said during a conference call with analysts that the combined company would be a "blockbuster" addition to CareerBuilder, and it would be a "loss" if it were bought out. "They don't have the penetration in the local market that we do," Hendricks added. "We look forward to working with them, just as Knight Ridder has, in building CareerBuilder."
McClatchy thinks a strong Web presence combined with a commitment to good, public-interest journalism will ensure that relevance. "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," Pruitt said. Knight Ridder Digital properties host 9.9 million visitors a month, while McClatchy Interactive hosts 3.5 million, according to Nielsen//NetRatings. The measurement firm estimates they share only about one million of those visitors, for a total unduplicated audience of 12.4 million, the MarketWatch analysis said.
Meanwhile, the John S and James L Knight Foundation rushed to assure journalism schools and other media programs that the Knight Ridder sale will not affect its charitable giving. "We'd like to take this opportunity to remind everyone that the sale of Knight Ridder to McClatchy will have little bearing on the foundation's ongoing work," the foundation said in a statement. Knight Foundation is a big funder of journalism programmes, and has given some 800 programmes $260 million in its history.
"Knight Foundation remains committed to serving journalism and the communities where the brothers (Jack and Jim Knight) owned newspapers, just as they intended when they created Knight Foundation," the foundation's statement said. "For the record, Knight Foundation owns 500,000 shares -- just 0.7 percent -- of the outstanding shares of Knight Ridder stock. The stock represents only 1.5 per cent of Knight Foundation's diversified $2 billion-plus assets."
The foundation traces its roots back to the Knight Memorial Fund established by the brothers in 1940 to provide financial aid to college students from the Akron area. The fund was run by the Akron Beacon Journal until 1950, when its assets were transferred to the Knight Foundation. McClatchy plans to seel the Beacon Journal.
