Posted on 03/08/2006 8:43:56 AM PST by abb
Published: March 08, 2006 11:05 AM ET
NEW YORK McClatchy is the likely front-runner in the Knight Ridder bid, according to a report released by Merrill Lynch this morning. Final bids for the company are due tomorrow.
But a lengthy analysis in the Minneapolis Stat-Tribune today, based on interviews with investors, pegs the more likely winner as the Gannett/MediaNews pairing.
"Based on trade speculation on Tuesday, we believe a successful McClatchy bid is slightly more probable but is far from a slam dunk," wrote Merrill Lynch analyst Lauren Rich Fine.
For several years there has been speculation among industry watchers that Knight Ridder and McClatchy would merge because of geography. Knight Ridder's properties in Northern California, Minnesota and the Carolinas would be attractive to the Sacramento-based McClatchy.
The Merrill report also takes into account that McClatchy executives tend to invest in high growth markets only, something that McClatchy CEO Gary Pruitt has repeatedly told analysts and investors. It throws some doubt on Gannett's ultimate interest in a partnership buy.
The Star Tribune's Chris Serres, meanwhile, reports the list of prospective buyers has narrowed to just three, with bids due Thursday, "according to investment bankers familiar with the negotiations." Still standing are McClatchy; a partnership between MediaNews and Gannett Co., and a group of buyout firms led by Thomas H. Lee Partners of New York, sources said.
"Analysts said MediaNews and Gannett are most likely to emerge as the successful bidder because they have the deepest pockets and the most experience doing acquisitions," Serres writes. "However, no one familiar with the discussions is ruling out a McClatchy purchase, in part because the company has been an aggressive bidder in the past." Analysts cautioned that the final lineup of bidders could change.
"For McClatchy, it would be a huge deal, but definitely within the realm of possibility," Larry Grimes, president of W.B. Grimes, a media investment bank based in Gaithersburg, Md., told the Star Tribune.
Serres observes: "The transaction could cost $6 billion to $8 billion, potentially making it the most expensive newspaper deal in history. Only a handful of newspaper companies have the wherewithal to finance a transaction of that size."
If McClatchy emerges the winner, Merrill Lynch thinks it's not "a bad way to improve shareholder returns," though McClatchy shares could come under pressure. When McClatchy acquired the Star Tribune in Minneapolis in 1997 shares fell 20%. On the flip side, when the company bought the Raleigh News & Observer in 1995, shares barely moved, according to the report.
Strategic buyers like McClatchy could enjoy more cost savings from eliminating corporate overhead, a luxury a private equity firm does not have. Merrill Lynch estimates that a strategic buyer could wrench about $50 million in savings in the fist year just from cutting corporate expenses. The winner could also cut costs by consolidating news bureaus, merging back office systems, trimming staffs, and, -- Merrill Lynch raises the specter -- possibly closing the Philadelphia Daily News. "Over time, we believe $150 million in cost savings is possible."
Overall, Knight Ridder's board will likely reject any bids that come under $60 per share and instead implement a massive stock buyback in the ballpark of $2 billion, according to the report.
However, if bids come in at the current level shares are trading at -- roughly $62.27 -- Knight Ridder will probably entertain bids depending on the company. "We believe [Knight Ridder] would be more inclined to sell to a strategic buyer at these levels vs. a financial buyer and from a cultural standpoint would favor McClatchy," Merrill Lynch said.
Knight Ridder will likely accept offers of $65 to $70 a share from either a private equity player or a strategic buyer. Any bids coming in at above $70 a share -- something Merrill Lynch thinks is highly unlikely -- Knight Ridder would be "elated" with that outcome.
Merrill Lynch does address the possibility of a joint MediaNews Group/Gannett bid to buy Knight Ridder. The research firm raises the question of Gannett's interest in teaming up since "minority partners rarely get full valuation for their stakes." If Gannett emerges as the sole winner, the company could have some downward pressure on shares, though not a huge drop.
Jennifer Saba (jsaba@editorandpublisher.com) is associate editor for E&P.
reminds me of the old definition of a boat...." a hole in the ocean surrounded by wood, into which you pour money.."
Gee....that's too bad.
So...the Mpls and St. Paul papers will be owned by the same company ? Where have we seen this work before ?
What if no one turns in a bid? Guffaw, guffaw....
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