McClatchy buying Knight Ridder for $4.5 billion
NEW YORK – Newspaper publishing company McClatchy Co. will buy Knight Ridder Inc., the second-largest newspaper company in the country, for about $4.5 billion in cash and stock, The New York Times reported Sunday night. Knight Ridder had been forced to put itself up for sale by its largest shareholders, who were frustrated with its stock performance.The Times, citing unidentified people involved in the negotiations, said Knight Ridder agreed Sunday night to the deal, which was expected to be announced Monday.McClatchy is based in Sacramento, Calif., where it publishes The Sacramento Bee and 11 other newspapers, including The Fresno Bee and The News & Observer in Raleigh, N.C. San Jose, Calif.-based Knight Ridder which has 32 daily newspapers, including The Miami Herald and the San Jose Mercury News.McClatchy has punched above its weight before, sealing a $1.4 billion deal in 1997 to acquire the Cowles Media Co., the parent company of the Star Tribune in Minneapolis. This deal, however, represents a much bigger bite for the company and its highly regarded chief executive, Gary Pruitt.While McClatchy is smaller than Knight Ridder, it has a strong balance sheet and is admired for both its business acumen as well as its commitment to quality journalism. McClatchy had long bucked an industry trend of circulation losses, posting annual gains in circulation for 20 years in a streak that finally ended last year.Acquiring Knight Ridder would mark a break from McClatchy’s usual pattern of investing in growing markets. Knight Ridder’s papers in both San Jose and Philadelphia have both struggled in recent years.McClatchy beat out a rival bid from a consortium of private-equity buyout firms that included Texas Pacific Group, Bain Capital, Thomas H. Lee Partners, Hellman & Friedman and Oak Hill Partners.Industry leader Gannett Co. and MediaNews Group Inc., a privately held newspaper publisher based in Denver, had also been interested.McClatchy agreed to pay about $67 a share for Knight Ridder, with 60 percent of the payment in cash and the rest in McClatchy shares, the Times reported. Knight Ridder shares closed at $65 in heavy trading Friday on the New York Stock Exchange.Messages left by The Associated Press with spokespeople for Knight Ridder and McClatchy were not immediately returned Sunday night.The deal would strengthen McClatchy’s presence in its home state of California by adding the Mercury News, although that paper has struggled recently and has a profit margin of only 8 percent, according to industry analyst Doug Arthur of Morgan Stanley. The industry average is 20 percent.McClatchy would also expand its presence in the Carolinas with the addition of The Charlotte Observer. In addition to The News & Observer, McClatchy also owns papers in South Carolina.The company would likely face antitrust problems, however, by owning both the Star Tribune in Minneapolis and the St. Paul Pioneer Press, Knight Ridder’s paper in the neighboring twin city.Last fall, Knight Ridder’s largest shareholder, a Florida-based investment firm called Private Capital Management, forced the company to explore a possible sale or face a shareholder revolt. The two next largest shareholders quickly joined the call, leading the company to solicit bids from potential suitors.Wall Street has been watching the process closely to see how much interest there is among buyers for the Knight Ridder properties. The newspaper business has fallen out of favor among many investors because of concerns about declining circulation trends, the loss of readers and advertisers to the Internet, rising newsprint prices and other worries.