Why would anyone want to buy it?
Knight Ridder's shares trade up
By David B. Wilkerson, MarketWatch
Last Update: 12:45 PM ET Mar 10, 2006
CHICAGO (MarketWatch) -- Knight Ridder Inc. shares traded modestly higher Friday following a report that McClatchy Co. has emerged as the top bidder for the newspaper publisher with an offer valued at more than $4.35 billion.
McClatchy (MNI) , based in Sacramento, Calif., offered to buy Knight Ridder (KRI) for $65 a share in cash and stock, The Wall Street Journal reported in its online edition, citing unnamed people familiar with the matter. See Wall Street Journal story (subscription required).
Bids for San Jose, Calif.-based Knight Ridder, whose shareholders in November forced the second-largest newspaper chain in the U.S. to put itself up for sale, were due on Thursday.
McClatchy's reported offer would value Knight Ridder at more than $4.35 billion, based on the $65-a-share price, the Journal said.
An offer of $65 a share would represent a 3.7% premium over Knight Ridder's Thursday close.
Knight Ridder and McClatchy spokesmen declined to comment on the Journal report.
Knight Ridder's stock was up $1.51, or 2.4%, at $64.17 in midday trading.
McClatchy was up 22 cents at $52.15, as investors didn't seem daunted by concerns that the bid would dilute cash flow growth.
Knight Ridder will not comment on bids until a "resolution" of the closely watched auction is reached, which won't happen before Sunday, spokesman Polk Laffoon said Thursday. He also said there may not be any announcement until "several days" beyond Sunday.
Analyst William Bird of Citigroup told clients Friday that the reported value of the deal is "well below" Knight Ridder's 10-year average multiple of 13 times earnings before interest, taxes, depreciation and amortization, representing a "testament to the growing secular pressures on the industry."
Bird added that if McClatchy emerges as the winner in the auction, it will probably have to divest certain properties to comply with federal ownership restrictions. The company currently owns the Minneapolis Star Tribune, for example, and might have difficulty retaining Knight Ridder's nearby St. Paul Pioneer Press.
McClatchy could also receive inquiries from other potential newspaper buyers that might see advantages in specific assets, Bird said.
The second-largest newspaper publisher, Knight Ridder owns such dailies as Philadelphia's Inquirer and Philadelphia Daily News as well as the San Jose Mercury News and the Miami Herald.
In addition to McClatchy, reports have identified Gannett Co. (GCI) , the nation's largest newspaper chain, as another public company bidding for Knight Ridder. Also mentioned are privately held publisher MediaNews Group and private-equity firms Texas Pacific, Bain Capital, Hellman & Friedman and Thomas H. Lee Partners.
Bird also said that there is unlikely to be another deal in the industry after Knight Ridder is off the table. Tribune Co. (TRB) is probably the next best candidate for a buyout, he said, but any potential buyer would be faced with "limited scope for cash flow improvement" and a "highly uncertain exit multiple" because of the company's ownership of television stations. Many of those stations are being converted to the new CW network next fall, when the WB network shuts down.
Knight Ridder put itself up for sale in November at the urging of its two largest institutional shareholders, Private Capital Management and Harris Associates.
Before the announcement, Knight Ridder shares had fallen more than 20% during 2005. They have since substantially rebounded.
Many industry observers have speculated that a buyout of Knight Ridder, particularly at a premium, would create broader interest in the newspaper sector, which has fallen upon hard times in an uneven advertising environment; a continuing decline in circulation that has been exacerbated by the Do Not Call registry; a steady migration of readership and ad revenue to the Web; and weakness in many of the largest U.S. markets.
Deutsche Banc Securities analyst Paul Ginocchio lifted his price target on Knight Ridder to $65 from $62 Wednesday, saying the fact that six different bidders had considered buying the company constituted "significant interest."