Magazine article Editor & Publisher

Stirring the Pot

Magazine article Editor & Publisher

Stirring the Pot

Article excerpt

Here's how it's supposed to happen: One fine summer day, the McClatchy Co. will close on its $6.5 billion March 2006 bet on the newspaper industry, absorbing 20 daily newspapers, a score of Web sites, and a stake in the jobs network. It also will set aside a tidy sum to pay taxes on a dozen daily papers ranging in size and health from The Philadelphia Inquirer to the Aberdeen (S.D.) American News, that its brokers have sold off in the meantime.

The target is July. McClatchy says it'll be the first day of the month. But for the dozen papers cast out by both Knight Ridder and McClatchy, it could be a symbolic passing: July 4, Independence Day.

Or, the whole thing could become more complicated and close on the more ambiguous July 14, Bastille Day, symbol of a revolution that went tragically wrong.

One date is sure: The March 13 announcement of the Knight Ridder deal came precisely six years after the industry's biggest blockbuster, Tribune Co.'s $8 billion acquisition of Times Mirror Co. It looked brilliant at the time, but now has the chain struggling with the Los Angeles Times' lagging performance, cross-ownership problems, and circulation scandals at former Times Mirror papers Newsday and Hoy.

There's a hint in the latest purchase deal that much can happen between now and the summer: If the sale isn't consummated, McClatchy receives a $171.9 million termination fee from Knight Ridder. And Wall Street, in the days after the announcement, showed some skepticism, pushing the price of both companies' stock down modestly.

But when it comes time for shareholders to actually vote on the deal in June, it's likely to be approved. Says industry veteran John Morton: "It's a very good deal to buy the whole company. If you take out those [12] properties, everything looks pretty good."

And what choice do Knight Ridder stockholders have, asks Ed Atorino, managing director at Benchmark Co. "If they say no, the stock will go down to $55," he says, noting the deal was valued at $67.25 per share at its announcement. McClatchy, he adds, "is not some fly-by-night private equity group that will destroy the papers."

But what of those 12 dailies up for sale? Newspaper brokers are convinced they'll find a home. Gregg Knowles, whose Knowles Media Brokerage Services specializes in California sales, says the three papers available in that state -- the KR flagship San Jose Mercury News, the Contra Costa Times, and The Monterey County Herald -- are in "great markets" and "buyer interest is high."

The properties are so good that Thomas Russo, partner in Gardner Russo & Gardner, which owns a 6% stake in McClatchy, was at first surprised the chain wasn't keeping them. Now he thinks it's a good idea, noting that McClatchy took a "wise pass on San Jose," and put the other two papers up for bid to establish an attractive package.

One possible buyer is William Dean Singleton, whose closely held MediaNews Group already owns several Bay area papers including the Marin Independent-Journal, The Oakland Tribune, The Daily Review in Hayward, The Argus in Fremont, and the San Mateo County Times.

There's a similarly natural buyer for the Aberdeen, S.D., paper and the Grand Forks (N.D.) Herald, and perhaps even the Duluth (Minn.) News Tribune: the Marcil family's Forum Communications, which in recent years has expanded into Plains and Minnesota markets well beyond their Fargo, N.D., flagship, The Forum.

What's less clear is what effect the Knight Ridder deal -- blockbuster though it was -- may have on future newspaper valuations. …

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