Knight Ridder ended up attracting only one newspaper bidder in the highly-publicized auction for one of the nation's prestige newspaper operators, underscoring the fog hanging over the industry and the unique challenges facing the company.
It was hardly much of an auction. No other newspaper company ended up submitting a formal offer for Knight Ridder, including Gannett, the nation's largest publisher, which had looked closely at it. Analysts and industry executives said they were also surprised that various consortia of private equity firms also demurred -- newspapers, these executives noted, have the capacity to generate large amounts of cash flow that could be used to pay down debt.
In the past, the second-biggest newspaper company in the country would undoubtedly have drawn a fair amount of interest. That it did not does not speak well for newspaper companies; their stock prices have already fallen because of the Internet's increasing popularity with readers and advertisers. But the auction, and its meaning for the newspaper industry, could have been worse: At least Knight Ridder found an acceptable offer.
As the operator of 32 daily newspapers, Knight Ridder offered potential buyers access to major newspapers in such markets as Fort Worth, Texas; St Paul, Minnesota; Kansas City and Miami. Yet overall, the company has underperformed other large newspaper groups as it struggled to make a financial success of some of its biggest markets, including Philadelphia, where it owns both of the city's major dailies.
And despite the decision of the chief executive, P. Anthony Ridder, to move the company's headquarters from Miami to San Jose, California, in 1998 to be closer to Silicon Valley, the company has failed to reassure investors that the digital age represents more of an opportunity than a threat to its business.
In agreeing to be acquired by the McClatchy Co, a significantly smaller company -- but one with a strong recent history of operating results -- Knight-Ridder is acceding to pressure from its largest shareholder, Private Capital Management, which basically said the company's managers had run out of time and chances.
"The group of newspapers are somewhat different from those that McClatchy has operated in the past and it's going to be tough unless they have some secret plan or secret sauce that Tony Ridder didn't have," said Barry Lucas, a newspaper analyst at Gabelli & Company.
Lucas said that whether a purchase price of about US$67 a share in cash and stock is considered a good one was difficult to say. He estimated that McClatchy is paying roughly 10 times Knight Ridder's cash flow in its last year, and a premium over what the shares traded at when shareholders began agitating for its sale last November.
But Lucas also noted that when Lee Enterprises acquired Pulitzer Inc in January last year, it paid between 13 and 14 times cash flow, a considerably richer multiple.
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