Knight Ridder Inc. bowed to investor pressure Monday and said it had asked investment bankers to "explore strategic alternatives," including a possible sale of the newspaper chain.
Shares in the San Jose-based company rose as much as $2.60, to $65.10, but slid back to close at $63.10 as Wall Street analysts questioned whether any buyer would be willing to spend the more than $4 billion that Knight Ridder's shares are currently worth.
"We are not convinced a deal is forthcoming," Merrill Lynch & Co. analyst Lauren Rich Fine wrote in a report to investors. UBS Warburg and Lehman Bros. analysts were similarly pessimistic.
Knight Ridder is far from eager to sell. For more than a decade, the company's executives have cited the threat of a takeover in cutting expenses to boost profitability.
But since Nov. 1, the company's three largest holders, with a combined 36% of the stock, have urged Knight Ridder to consider a sale.
"This is [Chief Executive] Tony Ridder's worst nightmare," said industry analyst John Morton. "This is exactly what he's been striving to avoid for years."
Created in 1974 through the merger of Knight Newspapers Inc. and Ridder Publications Inc., the company is the nation's second-largest newspaper group in terms of circulation. It owns 32 daily newspapers, including the San Jose Mercury News, the Philadelphia Inquirer and the Miami Herald. The company earned $326 million on revenue of $2.9 billion last year.
Knight Ridder's longtime banker, Goldman, Sachs & Co., is likely to spend weeks examining the company's books and interviewing executives before drafting a presentation for prospective buyers. Some analysts said media companies such as Los Angeles Times owner Tribune Co. and Gannett Co., the largest newspaper firm by circulation, could be interested in Knight Ridder. Those companies declined to comment Monday.
Several analysts said Tribune was preoccupied with internal issues, including continuing efforts to absorb Times Mirror Co., which it bought in 2000. And New York Times Co., Dow Jones & Co. and other companies couldn't easily afford Knight Ridder. A number of private investment firms said they weren't interested either, including one run by Denver billionaire Philip Anschutz, who also owns a small newspaper group.
Morgan Stanley analyst Doug Arthur said other possibilities included a big investment firm teaming up with Ridder or a smaller newspaper company to buy Knight Ridder.
"It's an opportunity for some of the smaller publicly traded companies to get a piece of the rock without buying the whole thing" by themselves, Arthur said. "There's tons and tons of companies that want to buy newspapers, but at the right price."
Arthur is among analysts who think a sale at some price is still more likely than not. One factor is that Goldman Sachs ordinarily would be paid more if it secured a buyer.
"Tony doesn't want anybody to buy the company," Morton said, "but when you hire an investment banker, it opens the door not just to the Gannetts of the world but to anyone else."
Many in the industry view Knight Ridder's plight as a referendum on the commercial value of newspapers, which have been losing paying readers to the Internet. In the six months through September, the country's weekday newspaper circulation dropped by 2.6%, hastening a two-decade decline.
Some current and former Knight Ridder employees said Monday that they hoped no buyer would emerge. Others said they feared that the chain's continued cost cutting -- which eliminated 52 of the 332 Mercury News editorial jobs just last week -- would accelerate if no deal were reached and the stock fell.
Still others said that as Knight Ridder cut expenses to avoid the scenario it now faces, it also eliminated the biggest reason to fight for its survival. After a streak that included 35 Pulitzer Prizes from 1985 to 1993, Knight Ridder papers have won just two in the last five years.
"If this had happened 15 or probably even 10 years ago, I would have been very concerned for a number of communities," said Davis Merritt, former top editor at Knight Ridder's Wichita (Kan.) Eagle and author of the book "Knightfall," which contends that a Wall Street-driven decline in newspaper quality is hurting U.S. democracy. "I don't have quite that concern anymore.
"It's kind of like the old Vietnam story -- we had to destroy the village in order to save it."