McClatchy Co.'s decision earlier this week to sell its largest paper, the Minneapolis Star Tribune, to a private equity group was the first recent example of a company with built-in voting control of its stock selling an asset under apparent Wall Street pressure. The shares held by the McClatchy family have 10 times the voting value of shares held by other holders. Family shareholders also have the ability to elect or remove 75% of the company's directors.
A lack of tiered shares was one reason dissident investors had little trouble breaking up Knight-Ridder Co. and pushing Tribune Co. onto the auction block in recent months.
'Made no difference'
"This is one of the first cases where the two-tiered stock made no difference," said veteran newspaper analyst John Morton. "That structure means McClatchy didn't necessarily have to become one of those companies more concerned about its finances than its papers, but it has."
Because many newspapers were traditionally family dominated, several of the largest publishers maintained dominant voting positions even as they took their papers public. These include Dow Jones, publisher of The Wall Street Journal, and the New York Times Co., which is using the two-tiered structure as a shield against a group of shareholders agitating for the sale of its struggling New England holdings, which include The Boston Globe.
These structures are often unpopular with investors, in part because they have occasionally been abused in the past. (In a well-known example, fallen press baron Conrad Black was indicted for allegedly using super-voting shares to wring millions from the parent company of the Chicago Sun-Times.) But the two-tiered model also makes it more difficult for activist investors to force management into certain decisions -- that comes in handy during a period of high discontent among newspaper investors.
Nonetheless, McClatchy opted to sell the Star-Tribune, its largest paper, to New York- and Houston-based Avista Capital Partners for $530 million, because, like the Globe for NYT, the daily's shrinking profit margins had been a drag on the company's overall results.
The price is about half of what Sacramento-based McClatchy -- now the country's No. 3 newspaper chain by circulation -- paid for the paper in 1998, which translates to a $160 million tax benefit for the publisher. The deal leaves McClatchy with 31 newspapers in 29 markets and a total weekday circulation of 2.76 million. But the move to shed a well-regarded editorial property for a tax advantage -- and selling to an out-of-market private-equity firm, no less -- could serve to weaken McClatchy's long-held reputation for protecting journalistic standards.
"These buyers aren't in it for the love of journalism, or even for the influence that you get by buying a local paper," said Mr. Morton. "They are in it to make a profit by flipping the paper in five or six years, and the way to do that usually involves a lot of cutting in the meantime."
In an interview with the Strib, Avista Partner James Finkelstein disputed that notion, saying, "You don't buy a paper that's involved in intellectual property and strip it. There'd be no point. All you're selling, all you have, is your intellectual property. You want people to read."
In a memo issued to staff after the announcement of the deal, McClatchy CEO Gary Pruitt said the company sold the Strib to pay down debt remaining from its spring acquisition of Knight-Ridder, and that neither its outlook for the industry nor it's approach to running its papers had changed.
"Our mission remains unchanged: to bring the benefits of independent, public-service journalism to the communities we serve," Mr. Pruitt wrote. "It has animated this company for nearly 150 years, and it animates us still."