PHILADELPHIA (Reuters) - Publisher McClatchy Co. is in advanced talks with privately-held MediaNews Group Inc. over four newspapers McClatchy plans to sell as part of its buyout of Knight Ridder Inc., according to sources close to the sale process.
MediaNews is the lead candidate to buy the San Jose Mercury News, the Contra Costa Times and The Monterey County Herald in Northern California, and is also in late-stage talks to buy Minnesota's St. Paul Pioneer Press, one of the sources said.
Denver-based MediaNews could also end up bidding for two Philadelphia-area newspapers on the auction block, the sources said, though that sale process is still in its earlier stages.
McClatchy, which agreed in March to buy larger competitor Knight Ridder for about $4.5 billion, plans to sell 12 Knight Ridder newspapers to help keep its debt load manageable and make sure its properties are aligned with its business strategy.
The deal's value has dropped slightly since then to about $4.3 billion, thanks to a slip in McClatchy's stock price.
McClatchy, which will become the second-largest U.S. newspaper chain after the Knight Ridder acquisition, hopes to announce the sales of at least some of the newspapers by the Knight Ridder deal's expected early July closing date.
Denver Post publisher MediaNews, which operates a large number of newspapers in California, is a logical buyer for the three Knight Ridder newspapers there. The California papers, combined with the St. Paul Pioneer Press, could be worth $500 million to $1 billion, one source estimated.
But talks between the two parties are at a sensitive stage, the sources said, and could fall apart at any time.
Questions still remain over whether MediaNews will partner with financial backers or another company to help pay for any acquisitions, one source said.
MediaNews did not return a call and an e-mail for comment on Sunday.
No. 1 U.S. newspaper publisher Gannett Co., which weighed a bid for Knight Ridder before backing out of sale process last year, had been expected to consider the purchase of a few papers. Gannett Chairman Douglas McCorkindale said in a conference call on Wednesday that the company was "not involved" in the newspaper auctions.
Still, several sources said it is possible that Gannett, the publisher of USA Today, will partner with MediaNews to operate some of the publications MediaNews might buy. Gannett and MediaNews already operate joint partnerships in Detroit, Texas and New Mexico.
PHILADELPHIA RAMPS UP
McClatchy is now starting up a closely-watched auction of the well-known but struggling Philadelphia Inquirer and Philadelphia Daily News. Sources said it distributed financial information to some bidders on Friday.
Yucaipa, a Los Angeles-based investment firm owned by grocery billionaire Ron Burkle, has strong interest in the Philadelphia assets, sources say.
Yucaipa, which has allied with The Newspaper Guild and with former Philadelphia Inquirer executives Robert Hall and James Naughton, says it will launch a new company to buy and run the newspapers.
Yucaipa's growing roster of seasoned newspaper operators, along with the weight the Newspaper Guild could pull at the unionized Inquirer, has turned its candidacy into an increasingly strong one, sources said.
Investor Chris Harte, the former publisher of Ohio's Akron Beacon Journal and the Portland Press Herald, has teamed with Avista Capital Partners to express interest in the Philadelphia assets, according to one source.
Avista, which has offices in New York and Houston, was founded by Thompson Dean and other former bankers from DLJ Merchant Banking Partners. The firm focuses on media, energy and healthcare deals, and it bought Midwestern cable operator WideOpenWest from Oak Hill Capital Partners and ABRY Partners last year.
A spokesman for Avista could not immediately be reached for comment.
Philadelphia-area homebuilding magnate Bruce Toll and local marketing and public relations executive Brian Tierney are also jockeying for the pair of Philadelphia papers.
To strengthen their bid, several sources said Toll and Tierney's group must either hire someone who can run the papers or partner with another bidder that has operating capability.
Toll, the vice chairman of Toll Brothers Inc., said he expected to receive financial information on the Philadelphia papers on Friday. He said his group is working to lock down a partner with newspaper operational expertise, though he wouldn't name any candidates.
