Newspaper Chain Draws Initial Offers
At least two potential buyers made preliminary bids Friday to acquire Knight Ridder Inc., the country’s second-largest newspaper chain, according to three people familiar with the discussions.
Among those submitting offers by the first-round deadline were investment firm Texas Pacific Group and an alliance of private equity investors Kohlberg Kravis Roberts & Co., Blackstone Group and Providence Equity Partners, the people said.
Investment bankers tracking the process said they expected at least two newspaper companies to join the bidding as well -- the country’s largest chain, Gannett Co., and privately held MediaNews Group Inc., owner of the Los Angeles Daily News and the Press-Telegram of Long Beach.
The level of interest increases the chances that San Jose-based Knight Ridder will change hands -- and at a price higher than its current stock market value. The rare auction of a major newspaper chain is being closely followed by the media industry as well as critics who note that such old-media properties are losing readers, advertisers and investors to the Internet.
The bidding thus far “demonstrates what the newspaper industry already knows, which is that newspapers are still valuable,” said industry consultant John Morton. He said he expected the eventual price to be more than Knight Ridder’s current stock value of $4.1 billion, although not as high as activist investors have hoped.
Investors were encouraged by the early bids, although the amounts could not be learned.
“The important things are that the process is completely open and fair and that there are at least two participants,” said Henry Berghoef, a money manager at Harris Associates, Knight Ridder’s third-largest shareholder. “The more participants, the better for the seller.”
Berghoef’s firm helped push Knight Ridder to seek buyers last month, when it joined the top two shareholders, Private Capital Management and Southeastern Asset Management, in demanding action by the owner of 32 papers, including the San Jose Mercury News, Philadelphia Inquirer and Miami Herald.
Texas Pacific, founded in 1993, is one of the largest and most aggressive buyout firms, taking on underperforming and complex companies as diverse as Continental Airlines and Burger King. It also is one of the most successful, last year reporting long-term returns of more than 50% a year before fees.
Kohlberg Kravis Roberts is one of the pioneers of large-scale buyouts, having engineered the takeover of RJR Nabisco in 1989 for more than $25 billion. Its reported partners in bidding for Knight Ridder, Blackstone and Providence, together acquired a 40% stake in Freedom Communications Inc., parent of the Orange County Register, in 2003.
Such private firms are flush with cash, having raised more than $100 billion industrywide this year alone.
Bankers and analysts said it was too early to say whether Knight Ridder was more likely to end up in the hands of an established media company or a pure investor, though a buyout firm might more easily come up with the more than $4 billion needed to make the deal.
Any buyer could decide to sell one or more of Knight Ridder’s newspapers, but an investment firm would be more likely to do so than a media industry buyer would, analysts said.
Asked about his interest in Knight Ridder this week, Gannett Chief Executive Craig Dubow said: “What we are going to do is what we always have. We are going to take hard looks at everything.”
Gannett has the highest profit margin of major newspaper companies and is one of the best regarded on Wall Street.
McClatchy Co., which owns the Sacramento Bee and the Minneapolis Star Tribune, also has been exploring a bid, bankers said. The company would need to borrow substantially more than it has in past deals to buy the much larger Knight Ridder, bankers said, or it could team with a buyout firm.
“McClatchy is not afraid to borrow a bunch of money; however, there are limits,” said banker Bob Broadwater of Veronis Suhler Stevenson in New York.
Gannett, MediaNews and McClatchy declined to comment Friday, as did Knight Ridder and the reported bidders.
Tribune Co., owner of the Los Angeles Times, said this week that it would not bid.
The first-round bidders will receive confidential information on Knight Ridder as they prepare concrete offers, a process expected to last into January. Although Friday marked the initial deadline, later preliminary bids will be considered.
Knight Ridder shares slipped 23 cents on Friday to $61.25 and are down for the year despite a 14% jump after the shareholders went public with their demand.
Times staff writer James Rainey contributed to this report.
