Goodbye Knight-Ridder – Gone Because, As A Public Company, “You Don’t Have The Luxury of Thumbing Your Nose at Wall Street”; Tribune Saves Itself From a Similar Fate

And as one 32-newspaper chain disappears, gobbled up by McClatchy that in turn dumped 12 of the properties, another major newspaper group has bought itself out of trouble for a while by buying back close to 15% of its shares. Tribune’s shares have jumped some 15% since it announced the buyback whose first stage was completed this week -- with the question still out there of whether it will be enough to stop shareholders demanding that Tribune break itself up. Its largest shareholder is not happy and believes there is more shareholder value to be had.

But back to Wall Street’s murder of a fine newspaper chain -- this writer freely confesses he has a soft place in his heart for the former flagship of the Knight-Ridder chain – The San Jose Mercury-News – now sold to Dean Singleton’s MediaNews. Graduating from San Jose State College in journalism in 1969, the PM News hired this first-year reporter at the outstanding annual salary of $5,720 plus, let us not forget, an annual free Thanksgiving frozen turkey.

A 4.0 grade point average in journalism classes and being editor of the university newspaper was all well and good but News Managing Editor Paul Conroy told me, “Now your real journalism education begins.” And I was promptly stuck on the copy desk for three months, correcting local copy, counting out headlines – no computers in those days -- measuring the column inches of wire copy. And you know what – learned more in those three months than the whole four years of journalism school!

ftm background

A High Price For Knight-Ridder Sale Would Have Signaled A Bright Future For Newspaper Valuations, But McClatchy Paid Practically No Premium And Yet In The Intervening Weeks Its Shares Have Dropped 12% To A Four-Year Low. What Does That Tell You?
Most observers seemed to think that McClatchy did OK. It bought Knight-Ridder for $4.5 billion representing a dollar or two a share over its stock market price, and then said it was only keeping the 20 newspapers that showed real growth and it was dumping the rest, and that sale, after tax, would reduce the total transaction to around $3 billion.

Lee Bought Pulitzer Last Year for 13.5 times Earnings Yet McClatchy Paid Just 9.5 times Earnings For Knight-Ridder. What Does That Tell You About the Value of Newspapers Today?
That someone, it happened to be McClatchy, paid about $67.25 a share for Knight-Ridder -- some $4.5 billion plus absorbing K-R’s $2 billion of debt -- was about what the markets expected. But where was Gannett and all those private equity companies that were expected to put in bids? The word is they dropped out, which gives as good an indication as any that newspaper valuations are not what they used to be.

US Newspaper Executives Tell Wall Street This Week Their 2006 Prognosis But the Real Story is That Knight-Ridder Won’t Be Presenting – It’s In the Midst Of Being Forced to Try and Sell Itself -- And That’s the Real Future That Many of Them Don’t Want to Talk About!
When the major US publishing companies give their various reports to the 33rd annual UBS Media Week Conference and to the Credit Suisse First Boston media meeting this week the shadow of who is not there will be overwhelming. Knight-Ridder’s prognosis is already known – its three main shareholders want it sold to gain shareholder value, and many of those other newspaper companies – especially those without family protection on their shareholdings – fear they could soon be in the same boat.

“Private Capital Management (PCM) Has $4 Billion Invested in US Newspapers. What Do They Know That We Don’t”? – FTM Sept, 2005; PCM Tells Knight-Ridder To Put Itself Up For Sale
In what must be considered a very gloomy assessment of the US newspaper business, one of its largest institutional investors has seemingly lost patience with the industry being able to turn itself around, and has now urged Knight-Ridder (K-R), the country’s second largest newspaper chain, to put itself up for sale.

Now That Knight-Ridder Is Officially For Sale, Two Questions Emerge: Who Would be Foolhardy Enough to Buy Newspapers These Days and Which Major Media Group Will Next Feel Shareholder Pressure To Sell Itself?
Knight-Ridder didn’t have much choice. With its three largest shareholders representing some 36% of the shares telling the company to explore ways of selling itself and threatening board changes if it didn’t, it hired Goldman Sachs to scout out the market.

From copy desk it was onto reporting, not just for the News but the morning Mercury. The Mercury was scary in those days. Its city editor, whose name amnesia has forcibly removed from my brain – was ferocious. More often than not a reporter would drop a story in triplicate into his “in” basket -- again no computers in those days -- and as he walked back to his desk the story, rolled up in a tight ball – would go hissing past his ear accompanied with the yell, “Rewrite” – and I cleaned that quote up a bit. You learned fast.

And so it was in those days that a tall lean Ridder started prowling the corridors of what was then considered to be the largest single-story newspaper plant in the world. Reporters and copy editors would ask who that guy was and we were told he was the nephew of the publisher – goes by the name Tony Ridder.

It didn’t look like he had a whole lot to do, but, naturally, since he was the boss’ nephew you kept the snickers to yourself. But one day he came to the local reporting section and asked how everything was and was there anything he could do to make things better for us.

That was the first time any of us remembered management doing that, so resisting the urge to ask for more money, a couple of the reporters mentioned that the gloss bright white paint on the walls with the very bright lights really made it really hard on the eyes – and that was true. He took note. We figured that was the end of that that, and yet the next week the painters showed up and repainted the whole newsroom off-white non-gloss. Tony Ridder got a lot of respect for that!

The Mercury and News were really fine newspapers, but their editorial content was much maligned because they were so advertising heavy. Indeed a story made the rounds that the advertising department had asked publisher Joe Ridder to reverse the normal flow of editorial and advertising on a page. Advertising is built from the bottom up and editorial gets what’s left at the top, but the ad department thought it should go the other way – ads on top and editorial down below. It is said it was one of the very few times that Joe Ridder sided with editorial over any request from advertising.

Those were the days when Silicon Valley was still a dream and you could still, on some days, actually see the Santa Cruz Mountains to the west although the smog was already making that difficult and it was already killing off the orange groves. Those Ridder newspapers then understood the value of local news – I got to do the police and municipal and superior courts beats quite often – and we had great local coverage out of the Sacramento and Washington bureaus (many a time I took dictation from a certain Lou Cannon). The newspapers were a goldmine –the most profitable of the Ridder newspapers, loaded with local advertising.

One thing we could never figure out was why the circulation really never grew much. San Jose lived in the shadow of San Francisco and the Chronicle in particular had a pretty good circulation in San Jose, but even so one always felt the circulation should have been higher, and that was a problem that seemed to stay with the newspaper even under Knight-Ridder. Once Silicon Valley hit, and hit again, the newspaper should have gone gangbusters – instead McClatchy sells it on to Dean Singleton because it doesn’t consider San Jose a fast growth market – go figure.

The Mercury, incidentally, is responsible for what I have always considered the best banner headline I ever saw. It was in 1967 and child movie star Shirley Temple Black was a conservative Republican running for Congress against Paul McCloskey. This was deep into the Vietnam days and Shirley campaigned on a policy of getting even more involved in Vietnam, which in conservative San Jose had a following. The election was an absolute squeaker, the polls saying it was an absolute toss-up.

Now remember Shirley Temple’s most popular song was “On The Good Ship Lollipop” which she sang as a girl in the 1934 movie Bright Eyes. And it was played time and again on television during the campaign. The morning after the election and the banner in the final Mercury newsbox edition blasted out “McCloskey Torpedoes Good Ship Lollipop” and everyone understood Shirley had lost.

Every newspaper has its great stories and there are too many to tell about that Ridder flagship, but perhaps one of the oddest was that upon closing the Knight and Ridder merger in 1974 Knight officials visiting San Jose suddenly found they were the proud owners of several Rolls Royce automobiles. Everyone knew from looking in the parking lot that publisher Joe Ridder had a penchant for the cars, but apparently it had gone unnoticed that the cars were not in his name but rather the name of the newspaper, probably for tax reasons. And so they became part of the merger. The story goes that they were sold off which is a pity – what neat companywide cars they would have made for reporters to go out on stories rather than the old orange jalopies they had us sign out.

Looking back on all this at the last shareholder meeting was Jean Batten, widow of James Batten, Tony Ridder’s predecessor who came from the Knight side of the deal. She told the New York Times, “It’s sad that (Knight-Ridder) is not any longer in this world.” Perhaps she also regretted that when Knight-Ridder went public that two classes of shares were not set up with one giving the Knight and Ridder management ultimate control. She noted that when you are a public company “You don’t have the luxury of thumbing your nose at Wall Street.”

In Chicago, Tribune chairman Dennis FitzSimons is going to find out whether he has the luxury of thumbing his nose at what is now his largest shareholder, the Chandler Trusts run by the family that sold Times-Mirror including the flagship Los Angeles Times to Tribune.

The Chandlers did not participate in the share buyback so their 12.2% of the company has now grown to 14.3%. Other major shareholders also sat out the buyback.

The Tribune share buy back did not go as well as planned. The company had thought it would be able to buy back 53 million shares, but ended up buying only 45 million shares and paying the highest price permissible in the Dutch auction --$32.50 a share – so that cost is $1.46 billion. . The shares had been languishing around $28 before announcement of the buyback. The company now says it will buy 20 million shares on the open market (it previously had planned to buy 12 million) and it would buy another 10 million shares from the McCormick Foundation that is a charitable foundation that carries the name of the founder of the Chicago Tribune.

The Chandlers said in a statement said they believed there was “greater value to be realized through prompt and meaningful strategic actions” – they want the television assets sold, even the company broken up and they are said to be having talks with local people in Los Angeles about perhaps bringing the Times back under local ownership.

FitzSimons said, “Now our priority is to improve operating performance through a combination of top-line growth initiatives and additional cost savings.” The company has already sold two television stations considered to be non-core.

FitzSimons may have the upper hand for now, but if he slips up – the $2 billion debt now considered as junk doesn’t get paid back out of increased revenues and more cost cutting – then we will not have heard the last from the Chandlers and he won’t be able to thumb his nose at them any more.

Goodbye Knight-Ridder – Gone Because, As A Public Company, “You Don’t Have The Luxury of Thumbing Your Nose at Wall Street”; Tribune Saves Itself From a Similar Fate – For Now