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McClatchy, which publishes 12 daily and 17 non-daily newspapers, will find itself much transformed when the deal closes, not least because the much larger Knight Ridder publishes 32 daily newspapers.
Once in a lifetime
"Opportunities like this come perhaps once in a company's lifetime, and we're thrilled to have this chance to extend McClatchy journalism and our proven newspaper operations to 20 high-quality newspapers in high-growth markets," said Gary Pruitt, chairman-CEO, McClatchy.
But the end of the auction, which began in November when Knight Ridder's three largest shareholders urged a sale, seemed to immediately open new fronts of contention.
The 12 papers McClatchy wants to sell include the Philadelphia Inquirer, San Jose Mercury News, Philadelphia Daily News and Akron Beacon Journal.
Publications don't fit
"These are terrific publications but simply do not fit with our long-standing acquisition and operating strategies," Mr. Pruitt said.
By 9:30 a.m., a letter from "Knight Ridder alums" posted on the journalism-business Web site Romenesko expressed displeasure.
"We're pleased that Knight Ridder chose McClatchy as the successful bidder for the company, but dismayed that McClatchy has said it will put growth markets ahead of community responsibility," it said. "McClatchy's reputation would be enhanced by retaining newspapers which may not produce margins as high as McClatchy historically has produced but which are vital to their communities."
The sale revives the newspaper guild's hopes, however, of buying some Knight Ridder papers. Knight Ridder refused to consider selling the company in pieces during the auction -- but pieces are now what's left in play.
'Better outcome' for employees
In a research note, Merrill Lynch analyst Lauren Rich Fine wrote that the McClatchy deal represents "one of the better outcomes" for Knight Ridder employees. The other reported bidder was a partnership of private equity firms including Thomas H. Lee Partners and the Texas Pacific Group, whose focus on returns and lack of journalism bona fides made some Knight Ridder reporters nervous.
The upshot for newspaper investors may be less encouraging, Ms. Fine wrote. "The fact that a strategic buyer was interested is good news, but the multiple paid represents a discount to the historical private multiple of [12 to 13 times] and will likely cap multiples in the group for some time unless fundamentals improve," she wrote.
And it was investor unrest that forced the sale in the first place. In making its demand for Knight Ridder to solicit bids, Private Capital Management said there was "limited growth across the newspaper industry," "continuing consolidation among the traditional sources of print-advertising revenue" and "the redirection of advertising dollars to other media."
If the McClatchy deal goes through, Private Capital will extricate itself fully from Knight Ridder -- but be left holding some McClatchy shares.