In late October, Knight Ridder’s stock was down almost 22% for the year, and a Florida investment firm began agitating for the sale of the 32–daily publisher. The Florida firm was Private Capital Management, Knight Ridder’s biggest shareholder.

The call for the sale went out, and Friday, December 9, was the first deadline for bids. A cost consultant from Morgan Stanley, a substantive Wall Street firm, recommended any buyer should drop 1,000 people from the Knight Ridder payroll, unload the Philadelphia Daily News while keeping the Philadelphia Inquirer , and do a few other objectionable things to get the annual cost of running Knight Ridder down by $350 million.

It’s not that the Knight Ridder papers couldn’t make good money. The average operating profit margin was running around 20%, as high as 26% among some of the smaller regionals like The State . But Private Capital Management was the company’s biggest shareholder, and the Securities and Exchange Commission had its rules about public shareholder rights protection. The tack to take now might be to get rid of the public shareholders altogether.

The State was sold almost 20 years ago to Knight Ridder along with a few other papers in The State realm, to include the Myrtle Beach Sun News , all owned by descendants of The State ’s founders of about a hundred years ago.

Real money moved around the Columbia–based family after the sale to Knight Ridder, something like 10 checks at over $30 million each. That was the good news. The bad news was The State became part of a shareholder–owned public company. What to do?

That’s hard to say since Knight Ridder is still entertaining bids. It will probably sell before the shareholders’ annual meeting this spring, but until then it makes sense to see all the offers and hear all the arguments.

The two offers that came forward before the deadline, December 9, were from private equity firms, artists at slash–and–burn cost reduction techniques. If costs can be driven down, supposedly, profits can be driven up, assuming revenues stay somewhat the same.

In print journalism, though, long– term profits enhancement can have more to do with the quality of the product than the bean–counters’ cost controls. Daily newspapers are gaining readership by playing up investigative journalism and by putting the narrative into a news story. Just cold reporting of the salient facts by understaffed news rooms is how daily newspapers are losing readership.

To gain readership is to not only retain the best writers but to recruit more. To cut back staff is to cut back readership, which in turn cuts back advertising sales, which cuts back operating revenues, and a death spiral ensues. Private equity firms know this, of course, but they want to slash personnel and costs to show an immediate gain in profits, only to quickly flip the paper to another owner, typically the public through a stock offering.

The dream team to take over The State is a private company in the newspaper business, a group not too different from its founding family. A family concern of concentrated wealth determined to ratchet up profits over the long haul can afford to carry the costs of a first–rate daily newspaper while it devises means of raising readership.

With a privately held paper there should be no five–year plan and its mid– course corrections if revenues don’t meet predictions. The editors and the managers might get to shape a paper without benchmarking every move relative to the bottom line from the last quarter. And the owner, the flush family firm, can see to it each paper in its company is the dominant paper in each market. Profits rise.

Such an environment really does exist. The publisher of the New Orleans Times– Picayune was in Columbia Saturday night at a New Year’s Eve wedding reception. He is the scion of his family and the third member of his family to hold the title of publisher at the Times– Picayune . Conversations with the guy exposed a real newspaper man. After introductions, a little research was in order.

The Times– Picayune is owned by the Newhouse family, and all Newhouse newspapers are under Advance Publications, the tenth largest US media company. Two brothers, Samuel I. Newhouse Jr. and Donald Newhouse, are listed among the Forbes 400 Richest Americans. Each is estimated to hold a personal net worth of $7.5 billion.

Donald oversees the newspapers, 23 dailies, and S. I., the magazines, which include The New Yorker and Vanity Fair.

There is a phenomenon in American newspaper circles called “The Newhouse Way.” Old newspaper pros are astonished at the tactics and the money dedicated to high aspirations and credited with high profits.

Maybe ten years ago the Newhouse family decided profitable newspapers were not enough. They had to reach higher. They’re getting there.

Where does that get The State?

Another daily newspaper owned by Knight Ridder is the Lexington Herald– Leader out of KY.

Some local Lexington business interests want to take control. They want to buy their local daily and keep it out of the hands of another publicly held corporation. The locals price their Herald–Leader from about $250 million to $350 million. They have already alerted Goldman Sachs, a Wall Street firm that’s advising Knight Ridder on its sale.

Lexington is similar to Columbia, both college towns, and the Herald–Leader has a daily circulation of 115,800, while The State reports a daily circulation of 116,300. The Herald–Leader averages 72 pages daily, and The State , 60 pages. Both papers have about 500 employees.