2005-12-16 / Business

First bids come to Knight Ridder

Star Exclusive
By John Temple Ligon


Newspaper publisher Knight Ridder has 32 papers, including The State and The Charlotte Observer . Early last month, activist shareholders demanded Knight Ridder look into a possible sale, and the publisher asked for bids, due Friday, December 9. Knight Ridder is making money, plenty of it, but not enough to keep the activist shareholders happy. Last year, only four of Knight Ridder’s 32 daily newspapers failed to keep their profit margins above 18%.

Knight Ridder’s smaller regionals, including The State , are averaging a 26% profit margin. Even so, Knight Ridder stock fell 20% this year, while circulation has grown only 1% over the past four years. Across the country the newspaper business is experiencing layoffs and cutbacks. Editorial page cartoonists numbered 200 in the country just 20 years ago. Now there are 90.

Newspapers should remain valuable investments, as 77% of the adults in the top 50 markets read a newspaper at least once daily. The 18–to–34–year–olds read newspapers at a rate of 68%. Knight Ridder newspapers have won 84 Pulitzer Prizes.

Morgan Stanley was hired by Knight Ridder to recommend cost cutting measures. Morgan Stanley targeted the Philadelphia Daily News for shutdown and held out 1,000 as the desired number of layoffs.

Altogether Morgan Stanley’s savings came to $350 million annually.

Goldman Sachs is managing the auction. There was no release or announcement from Knight Ridder Friday, December 9, but word got to the Los Angeles Times at least two bids were submitted.

Investment firm Texas Pacific Group submitted a bid, as did an alliance of private equity investors Kohlber Kravis Roberts, Blackstone Group, and Providence Equity Partners. Other private equity firms were rumored to come forward with bids.

Also, three newspaper publishers were expected to submit bids: Gannett (America’s largest newspaper chain), MediaNews Group, and McClatchy Co., owner of the Sacramento Bee and the Minneapolis Star Tribune , Unlike industry trends, McClatchy has managed to increase circulation consistently over the past 20 years.

The Tribune Company, owner of the Los Angeles Times, said it would not submit a bid.

Bids appear to be coming in above Knight Ridder’s market capitalization value of $4.1 billion. Although only two bids were reportedly submitted by Friday’s deadline, Knight Ridder will consider later bids.

The first–round bidders will get an inside look at Knight Ridder’s books in order to prepare firmer offers, probably by the end of January or later.

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