The McClatchy Co emerged on Thursday as the leading bidder to acquire Knight Ridder, which owns the Philadelphia Inquirer and the Miami Herald, with a binding bid worth more than US$4.8 billion in cash and stock, according to people involved in the auction.
A group of private equity firms, including the Texas Pacific Group and Thomas H. Lee Partners, submitted a nonbinding bid, known as an indication of interest, for about US$4.7 billion in cash, these people said.
A third group -- made up of the publishing company MediaNews, several private equity firms and possibly the Gannett Co -- remains interested in the newspaper chain, these people said, though it was unclear on Thursday night whether the group had submitted a formal bid.
Knight Ridder's board is expected to meet this weekend to weigh the offers and could announce a decision as soon as Monday, these people said.
McClatchy's offer is worth more than US$65 a share. The company has a market value of US$4.6 billion.
If McClatchy wins the bidding, it would be buying a company twice its size. While McClatchy publishes 12 dailies, including the Star Tribune in Minneapolis; the News & Observer in Raleigh, North Carolina; and the Sacramento Bee, Knight Ridder has 32 newspapers, many in major markets like San Jose, California; St. Paul, Minnesota; Kansas City, Missouri and Fort Worth, Texas.
Knight Ridder is attractive largely because its newspapers remain profitable despite the current environment of declining industry revenue. Its overall profit margin in 2004 was 19.3 percent, which is robust.
In addition, Knight Ridder has several strong newspaper Web sites and various online ventures that could serve as gateways to a substantial presence on the Internet, from which analysts expect strong revenue. Its assets include CareerBuilder.com, a popular Web site that it owns with Gannett and the Tribune Co.
McClatchy, based in Sacramento, has a history of buying larger companies. In 1997, it acquired the Cowles Media Co, publisher of the Star Tribune, despite Cowles' being nearly twice McClatchy's size.
Analysts and people inside Knight Ridder have long said that McClatchy would be the best fit culturally.
In a note to investors, Lauren Rich Fine, a Merrill Lynch analyst, wrote on Wednesday, "We do believe that MNI would be KRI's first choice, everything else being equal," referring to McClatchy and Knight Ridder by their ticker symbols.
When Knight Ridder's board considers the offers, it is not expected to look only at the highest offer, people close to the board said. Directors will also consider issues related to maintaining the journalistic integrity of the chain's newspapers, as well as how certain it is that a transaction can be completed and how quickly, these people said. The board could also decide to scrap a sale and pursue a stock buyback.
Knight Ridder was formed in 1974 by a merger of Knight Newspapers Inc and Ridder Publications. It is different from many other publicly traded newspaper companies in that it has one class of stock, so the founding families do not have a controlling interest that would allow them to block a takeover.
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