Shareholder Pressure Leads Knight Ridder to Announce Sale
Tuesday, November 15, 2005
Knight Ridder Inc., which publishes such newspapers as the Philadelphia Inquirer, Miami Herald and San Jose Mercury News, put itself up for sale yesterday under continued pressure from outside shareholders to boost its stock price.
The nation's second-biggest newspaper publisher said it hired Goldman, Sachs & Co. to find a buyer, though it cautioned that a deal may or may not occur. In a sign of the company's seriousness about seeking a buyer, Knight Ridder's board of directors also voted to make it easier for shareholders to submit proposals at the company's 2006 annual meeting, which is tentatively scheduled for the spring.
Analysts said the most likely bidders include the numerous private equity firms that have billions of dollars for acquisitions and major media companies -- with Gannett Co., the New York Times Co. and the Tribune Co. topping the list. Another possibility, analysts said, is that a financial firm could team up with a major newspaper publisher to make a joint offer for Knight Ridder, which is worth $4.4 billion at its current stock price.
Knight Ridder shares traded as high as $65.10 yesterday before closing at $63.10, up 60 cents. The stock has traded as high as $71.02 in the past year. In 2004, the company had $3 billion in revenue and $326.2 million in profit.
The company was put into play early this month after Private Capital Management Inc., a Florida-based investment firm, disclosed that it purchased a 19 percent stake in Knight Ridder, criticized its management and pressured the board of directors to put the giant publisher on the auction block.
In a memo yesterday to thousands of employees, Tony Ridder, the company's chief executive, addressed the considerable uncertainty created by the board's decision to hire Goldman and solicit offers. He urged them to continue doing their jobs during what is likely to be a lengthy, multi-month process filled with uncertainty about the future.
"Our jobs, always, have been to publish great newspapers and online services, and we have done that very well," Ridder wrote. "It is important that we continue to do so in the weeks and months to come. Indeed, a big part of all of our jobs will be to stay focused. Nothing could be more critical to the best outcome of the process we're now in than that we run our businesses well."
Knight Ridder, based in San Jose, publishes 32 daily newspapers, with a readership of 8.5 million daily and 11 million Sundays. In addition, the company has a Washington bureau with about 40 reporters and operates Realcities.com, which it describes as the leading national network of city and regional Web sites. In addition to owning dozens of weekly newspapers, Knight Ridder -- whose long history includes 84 Pulitzer Prizes -- also publishes the Kansas City Star, Fort Worth Star-Telegram, Charlotte Observer and St. Paul Pioneer Press.
The company, formed by a merger of Knight Newspapers and Ridder Publications in 1974, traces its roots to the late 1800s, when Herman Ridder started the company by purchasing the leading German-language newspaper in the United States. Eleven years later, in 1903, Charles Landon Knight, a lawyer turned editor, bought the Akron Beacon Journal.
A number of the company's senior executives are members of the founding families, though they no longer own a controlling stake, according to the firm's 2005 proxy statement. Tony Ridder, the family's biggest individual shareholder with 1.9 percent, moved into the top corporate job in 1995. His brother, Peter, is president and publisher of the Charlotte Observer, and his son, Par, is president and publisher of the St. Paul Pioneer Press.
In a note to investors, Steven N. Barlow, an analyst with Prudential Equity Group, said a financially oriented buyer is more likely to prevail in the bidding for Knight Ridder than another media company. "The company could fetch between $70 and $100 per share based upon previous transactions in the space but we see the low-to-mid end of that range as most likely," he wrote.
Knight Ridder, along with numerous other newspaper publishers, has been cutting jobs and other costs amid a sluggish advertising environment and rising newsprint prices. The shift of advertising from newspapers to the Internet is a major factor that has put financial pressure on Knight Ridder and others in the industry. In addition, circulation at major daily newspapers, including those published by Knight Ridder, has been declining in recent years.
Larry Grimes, who heads a Gaithersburg investment banking firm with a media focus, said Knight Ridder would be a good geographic fit for the New York Times Co. since it publishes newspapers on the East Coast, including Florida, where the Times already owns major papers. He also said Gannett, the nation's largest newspaper company, would probably be interested in buying Knight Ridder but noted that antitrust issues could force it to sell off some newspapers and television stations. He said that the Tribune Co. has shown a healthy appetite for large newspaper acquisitions and that The Washington Post Co. and Richmond-based Media General may also show interest.
"All the major newspaper players are watching this closely," Grimes said. "It will establish a benchmark value for their franchises."