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Sun, Jun 25, 2006 - Page 12 News List

End of an era as McClatchy buys out Knight Ridder

Cash flow and Internet pressure sealed the fate of the century-old organization, which has upset advocates of quality journalism

AP , SAN JOSE, CALIFORNIA

Like many newspaper lovers, Larry Jinks is wrestling with mixed emotions as Knight Ridder Inc's shareholders prepare to vote tomorrow on the company's US$4.5 billion sale to McClatchy Co.

Jinks takes comfort knowing most of Knight Ridder's 32 daily papers will be turned over to a well-regarded publisher like McClatchy, where he sits on the board of directors.

But as someone who spent most of his career working for Knight Ridder, Jinks sympathizes with journalists and readers mourning the loss of the second-largest US newspaper publisher -- a company long admired for its community service and enlightening stories.

While the US Department of Justice has requested more information about the sale of two newspapers involved in the Knight-Ridder deal, McClatchy spokeswoman Sarah Lubman said this week that the shareholder vote is still on track for tomorrow.

"I am sorry to see it going away," said Jinks, who joined the McClatchy board in 1995 after retiring from Knight Ridder, where he served stints as executive editor of the Miami Herald and publisher of the San Jose Mercury News. "I have been involved in newspapers since 1950, and the last year has been the most tumultuous of any that I can remember."

Knight Ridder's demise may foreshadow more sobering times ahead for newspapers if advertising continues its shift to the Internet, intensifying pressure on publishers to cut costs to satisfy investors who continue to demand higher profits despite the industry's eroding revenue and readership.

Those tensions buried San Jose-based Knight Ridder, which spent much of the past decade fruitlessly trying to please Wall Street. Knight Ridder's papers have a combined daily circulation of 8.1 million, down from 8.5 million in 2001.

The relentless pursuit of more profit became an uphill battle as the company tried to offset its diminishing revenue by eliminating 3,500 jobs, or 16 percent of its workforce, over the past five years.

The purge weakened Knight Ridder's newsrooms when it should have been bulking up to cope with the online revolution, said Jay Harris, who quit as Mercury News publisher in 2001 because he didn't want to make deep cuts at the Silicon Valley paper.

Shareholders weren't placated because management still could not deliver on its promise to bring the company's profits in line with the rest of the industry.

Last year, Knight Ridder's operating profit margin stood at 16.4 percent compared with the industry average of 19.2 percent, industry analyst John Morton said.

And it was backpedaling faster than its peers. In 2004, it posted an operating profit margin of 19.4 percent compared with 20.5 percent for the industry, Morton said.

Investors took out their frustrations on Knight Ridder's stock, which plunged from a high of US$80 in 2004 to a low of US$52.42 last year. Shares dropped 0.8 percent on Friday to US$60.96.

Exasperated with the firm's performance, the company's three largest shareholders confronted the board last year. That rebellion led to the McClatchy sale, a cash-and-stock deal initially valued at US$67.25 per share when it was announced in March.

If shareholders give their approval, Knight Ridder plans to close the sale on Tuesday, ending the existence of a company with roots dating back to 1892, when Herman Ridder bought a German-language paper in New York.

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