- The Washington Times - Monday, March 13, 2006

The McClatchy Co. will become the second-largest U.S. newspaper company once it completes the $6.5 billion acquisition of Knight Ridder Inc. that it announced yesterday.

But newspaper analysts said the nation’s largest print news outlet, Gannett Co., which publishes USA Today and 90 other papers, still can get what it wants of the Knight Ridder chain from among the 12 papers that McClatchy has said it will sell.

The offer values Knight Ridder at $67.25 a share — $40 in cash and the rest in McClatchy shares — and the Sacramento, Calif., company will assume about $2 billion in debt.

“It’s a fair price for Knight Ridder, and certainly for McClatchy, it’s going to be a good deal spinning off a dozen papers that do not fit in with their strategy,” said John Morton, president of Morton Research Inc., a media consulting firm in Silver Spring. “They can use that money to pay down the debt they’re assuming.”

Larry Grimes, president of W.B. Grimes & Co., a media investment bank in Gaithersburg, said he expected McClatchy to win, “but I’m a little surprised with the way the process has evolved,” especially the immediate announcement to sell papers, including the San Jose Mercury News in California and Philadelphia Inquirer.

“For the 12 newspapers that will be sold, the uncertainty is not over, and I regret that very much,” said Knight Ridder Chairman and Chief Executive Officer Tony Ridder.

Mr. Grimes questioned Mr. Ridder’s sentiment because the sale apparently hinged on the need to spin off the dozen papers: “He obviously blessed this particular deal.”

“We have no plans for layoffs at the newspapers,” Gary Pruitt, McClatchy’s chairman and chief executive, said on CNBC. “There will of course be some consolidation at corporate offices and some Internet operations. But we plan to maintain, sustain and further the journalism at these newspapers.”

McClatchy does not expect to have any difficulty selling the papers, which Mr. Pruitt said the company began marketing yesterday.

The papers being sold have a cash-flow margin of 18 percent, compared with 30 percent for the ones being kept, he said, adding that household income growth in the available papers’ markets is less than half of that to the publications being kept.

Although he was surprised that Gannett did not make an offer for Knight Ridder, Mr. Morton said he expects the McLean newspaper company to bid on some of the papers McClatchy plans to sell.

“They can get what they wanted out of Knight Ridder by buying it from McClatchy, in Philadelphia, for example,” he said.

Tara Connell, a spokeswoman for Gannett, would not comment on the Knight Ridder sale or the prospect of the company buying any of the 12 papers McClatchy intends to sell.

The Newspaper Guild-Communications Workers of America previously announced its intention to bid on nine Knight Ridder papers with strong union representation. McClatchy intends to keep only one of those, the Lexington (Ky.) Herald Leader.

The Guild yesterday said although it had been focused on the unionized papers, it will consider the entire package of 12.

The Guild is backed by the Yucaipa Cos., a private equity firm in Los Angeles, and the professional counsel of Duff & Phelps Securities LLC of Chicago and Ownership Associates of Cambridge, Mass.

But Mr. Grimes expects Gannett and Denver publisher MediaNews Group Inc., which reportedly tried to partner to bid on Knight Ridder, to buy many of the available publications.

The expanded McClatchy Co. will have 32 daily newspapers and about 50 non-dailies after the planned sale of the 12 Knight Ridder papers. McClatchy’s dailies will have a combined daily circulation of about 3.2 million, making it the nation’s second-largest newspaper company measured by daily circulation.

The deal is expected to close within four months.

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