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Knight, McClatchy Reportedly in Deal

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Times Staff Writer

Knight Ridder Inc., the nation’s second-largest newspaper company, is expected to announce today that it has agreed to be acquired by McClatchy Co. in a deal valued at $4.5 billion, according to a published report.

Under the deal approved by Knight Ridder’s board Sunday night, McClatchy, based in Sacramento, would pay about $67 a share in cash and stock for the company, according to the New York Times, which cited unnamed sources in an article posted on its website late Sunday.

A spokesman for Knight Ridder declined to comment Sunday. Calls to McClatchy seeking confirmation were not returned.

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McClatchy, which is about half the size of Knight Ridder by daily circulation, owns 12 daily newspapers including the Sacramento Bee, the Star Tribune of Minneapolis and the News & Observer in Raleigh, N.C.

San Jose-based Knight Ridder, owner of 32 dailies including the San Jose Mercury News, the Philadelphia Inquirer and the Miami Herald, put itself up for sale last fall under pressure from its three largest shareholders, who were unhappy with its stock performance.

Bruce Sherman, chief executive of Private Capital Management and holder of the largest share of the company, with about 18% of its stock, sent a letter in November to the board urging it to explore ways to raise Knight Ridder’s stock value, which had been languishing.

Sherman also owns 35% of McClatchy’s nonvoting stock.

Private Capital Management was later joined by shareholders Southeastern Asset Management Inc. and Harris Associates in pressuring the board to consider a sale.

At the time, Knight Ridder shares were struggling to recover after falling 24% amid investor worries over stagnating circulation and advertising and higher newsprint costs -- issues that have plagued the entire newspaper industry. The fate of Knight Ridder has been closely watched in the publishing world as a possible harbinger of more widespread changes.

Morgan Stanley analyst Doug Arthur said last week that a McClatchy purchase could be viewed as a “win-win-win” because the Sacramento company is well regarded by investors, journalists and newspaper distributors.

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“McClatchy has a great management team, a good culture,” Arthur said. “They’re a builder, not a cost cutter, although they do watch their costs.... This is a management team that needs a bigger platform -- a company that investors would love to own more of, but [currently] there’s not a lot of it to own.”

In addition to McClatchy, the sale drew interest from a consortium of private equity companies including Bain Capital, Texas Pacific Group, Thomas H. Lee Partners, Hellman & Friedman and Oak Hill Capital Partners.

Also weighing an offer was MediaNews Group Inc., the Denver company that owns 40 daily newspapers, including the Daily News in Los Angeles and the Oakland Tribune. MediaNews teamed with private equity firms Madison Dearborn Partners, Onex and Vestar Partners.

Gannett Co., the nation’s largest newspaper company and owner of USA Today, also considered a bid.

It was not clear which, if any, of those suitors actually submitted formal bids.

In California, McClatchy owns four papers east of the Bay Area -- in Sacramento, Modesto, Fresno and Merced. Knight Ridder owns four papers in Northern and Central California -- in Walnut Creek, San Jose, Monterey and San Luis Obispo.

Knight Ridder was formed in 1974 with the merger of Knight Newspapers Inc. and Ridder Publications Inc.

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Herman Ridder founded Ridder Publications in 1892 when he acquired a German-language newspaper in New York, the Staats-Zeitung. Knight Newspapers was founded by John S. Knight after he inherited the Akron (Ohio) Beacon Journal in 1933 from his father.

In 2005, Knight Ridder’s 32 dailies had a combined daily circulation of 3.4 million with 18,000 employees. The company posted net income of $471.4 million, up 44.5% from a year earlier.

McClatchy, founded in 1857, had a combined daily circulation of 1.4 million in 2005. It posted net income of $160.5 million, an increase of 2%, on revenue of $1.2 billion, which was up 2% from a year earlier.

Times staff writer Joseph Menn in San Francisco contributed to this report.

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