Media mogul William Dean Singleton has made himself the clear favorite to acquire three Northern California newspapers being sold by McClatchy Co. with his offer to buy those papers and one in Minnesota for as much as $1 billion, according to people familiar with the talks.
Singleton's Denver-based MediaNews Group Inc. already sells more newspapers each day than any other company in California and is a major player in the suburban markets around Los Angeles and San Francisco.
Completing a deal with McClatchy would give him a controlling interest in the San Jose Mercury News, the Contra Costa Times and the Monterey County Herald, as well as the St. Paul Pioneer Press in Minnesota.
McClatchy intends to unload the papers -- and eight others that it is acquiring in its pending purchase of Knight Ridder Inc.--while retaining 20 Knight Ridder papers to become the second-largest U.S. newspaper chain.
McClatchy and MediaNews hoped to complete their deal this week, but a number of details remained to be ironed out late Wednesday, and sources familiar with the talks said a final agreement was not a certainty.
Singleton has been working with private-equity firms and newspaper companies, as he often does, in pursuit of Knight Ridder's properties. It is unclear which partners he might take on in the pending acquisitions.
Buying the Mercury News and the Contra Costa Times would allow Singleton to link their newsrooms, advertising and production operations to nine other papers his company owns in the Bay Area, strengthening what is already a formidable challenge to the San Francisco Chronicle.
"He has most of the dailies that now surround San Francisco proper and this only enlarges his presence in the area," said veteran newspaper analyst John Morton. "With the California properties, Singleton has more of a motive than other folks to pay a higher price because it would enhance what he already owns."
MediaNews has pursued a similar strategy in the Southland, where the Los Angeles Times competes with a bevy of MediaNews papers, including the Long Beach Press-Telegram, the Pasadena Star-News and the Daily News in the San Fernando Valley.
The offer from MediaNews could provide a significant boost for McClatchy, which has seen its stock drop 17% since it announced its purchase of Knight Ridder on March 13. The slide has dropped the value of McClatchy's stock-and-cash offer from $4.5 billion the day it was announced to under $4.2 billion.
MediaNews' offer of up to $1 billion would amount to a higher price -- based on the cash flow generated by the newspapers -- than McClatchy itself agreed to pay in buying out Knight Ridder, according to a source familiar with the deal.
McClatchy hopes a lucrative deal with Singleton would encourage higher bids for the remaining Knight Ridder papers it wants to sell.
McClatchy currently owns 12 daily papers, including the Sacramento, Fresno and Modesto Bees. The purchase of San Jose-based Knight Ridder, which is expected to close this summer, would increase McClatchy's holdings to 32 papers after selling the 12 papers in markets that don't fit McClatchy's growth strategy.
The Sacramento-based company rejected an offer from Singleton to buy the Philadelphia Inquirer and its sister paper, the Philadelphia Daily News, in the expectation of getting a higher bid from one of several interested parties, sources said.
McClatchy hopes to get about $600 million for the two Philadelphia papers. If that happens, and the MediaNews deal goes through as anticipated, McClatchy would be well on the way to garnering the $2.15 billion it said it hoped to get for the 12 papers.
McClatchy's negotiations with MediaNews have frustrated other would-be bidders for the four papers, including local groups in Monterey and St. Paul that said they were denied access to the internal financial information necessary to craft meaningful bids.
"We have a good investors' group, legal counsel, and we have a bank that will finance it for us," said John Wodele, a spokesman for the St. Paul group. "A lot of good that does us if we can't communicate with McClatchy."
A group of local investors in Monterey also expressed disappointment at being shut out of the bidding for the Herald.
"We have the wherewithal to do the deal," said Lewis A. Leader, a spokesman for the group. "And we would return it to local ownership, which people here want."
More alarmed than anyone by a prospective deal between MediaNews and McClatchy is the union that represents employees at the San Jose, Monterey and St. Paul papers. In alliance with L.A. billionaire Ron Burkle, the Newspaper Guild-Communications Workers of America has been trying to engineer a takeover of all 12 papers on the block.
Burkle's Yucaipa Cos. tentatively bid more than $2 billion for the 12 papers. Like the others, Yucaipa has been excluded from the more advanced talks over the fate of the California and St. Paul papers.