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Group Weighs Bid for Knight Ridder

December 02, 2005|Joseph Menn | Times Staff Writer

A group of private equity firms, including two that own a significant stake in the Orange County Register, is mulling over a bid for newspaper chain Knight Ridder Inc.

Blackstone Group, Providence Equity Partners Inc. and Kohlberg Kravis Roberts & Co. are working on a possible offer for the San Jose-based company, three people with knowledge of the discussions with Knight Ridder said Thursday.

It was unclear whether the talks would lead to a formal offer or how much it might be.

Knight Ridder, which owns 32 daily papers, including the San Jose Mercury News, the Miami Herald and the Philadelphia Inquirer, said last month that it would consider a sale in response to complaints from investors who own 36% of the company's stock. No newspaper company has emerged as a suitor for the chain.

Blackstone and Providence together acquired a 40% stake in Register parent Freedom Communications Inc. in 2003, and profit margins have increased "significantly" since then, said Freedom Chief Executive Alan Bell. The positive experience with Freedom helped persuade the buyout firms to take a close look at Knight Ridder, according to a person at one of the private equity firms, who requested anonymity because of the confidential nature of the talks.

Blackstone and Providence teamed up this fall with KKR to buy a Danish telecommunications firm for $14 billion. Previously, KKR had invested in Primedia Inc., publisher of an array of enthusiast magazines such as Motor Trend and Surfer.

News of a possible bid -- first reported Thursday in the Wall Street Journal -- did little to boost Knight Ridder's stock, which rose 53 cents to $60.93, giving the company a market value of $4.1 billion.

Knight Ridder's investment bankers -- Goldman Sachs & Co. and Morgan Stanley -- recently gave contenders until Dec. 9 to say whether they were seriously interested in pursuing a bid for the company, the sources said, although later bids could also be entertained.

The investment bankers asked potential bidders to sign a confidentiality agreement before receiving information about the company.

Although such agreements are common in deal-making situations, some have objected to Knight Ridder's terms, which bar potential bidders from speaking with the company's employees, said one newspaper executive familiar with the agreement.

"There are those who feel the agreement is too restrictive," said Joseph Lodovic, president of MediaNews Group Inc., which owns 40 daily papers including the Los Angeles Daily News. He declined to say whether his firm had signed.

Gannett Co., the nation's biggest newspaper chain, whose holdings include USA Today and the Detroit Free Press, frequently has been mentioned as a possible bidder.

But Gannett spokeswoman Tara Connell said the McLean, Va.-based company wasn't reviewing Knight Ridder's information, although she wouldn't say whether the confidentiality agreement was the reason. When asked in the past about Knight Ridder, Gannett had said it would look at any acquisition opportunities.

It wasn't clear whether Tribune Co., owner of the Los Angeles Times and another newspaper company sometimes mentioned as a possible bidder, had signed the agreement. The Chicago-based company declined to comment, although an executive familiar with the process said there was virtually no chance that the company would bid. The executive spoke on condition of anonymity, citing company policies against commenting on strategic possibilities.

Analysts said they were puzzled that neither Tribune nor Gannett expressed an interest in Knight Ridder.

"That surprises me, if Gannett doesn't take a careful look at Knight Ridder after being a rumored interested party for 15 years," said analyst Doug Arthur of Morgan Stanley.

The dimming chances that a bid will come from a newspaper chain raises the odds that parts of Knight Ridder could be sold off or shut down, analysts said. Freedom CEO Bell said a private equity firm could be a good fit as a newspaper owner because it could be more patient than short-term stock investors, but not everyone agrees.

Private investors will be "more aggressive about breaking it up and restructuring," said independent analyst Harold Vogel. "Whether they're better at running it is another story."

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