California and the West

Knight Ridder Bids Seen

The newspaper chain is expected to receive offers from McClatchy and a partnership of Gannett and MediaNews Group.

March 09, 2006|Joseph Menn | Times Staff Writer

At least two and possibly three prospective buyers are expected to submit bids today for Knight Ridder Inc., the second-largest U.S. newspaper chain.

A deal could be announced within days, said bankers familiar with the process, although if the bids are close, the auction could drag out for weeks.

Two of the three potential bids are from newspaper companies. McClatchy Co. is expected to make an offer, as is an alliance that includes No. 1 chain Gannett Co. and MediaNews Group, the closely held publisher of papers including the Los Angeles Daily News.

A group of investors that includes Bain Capital, Hellman & Friedman, Thomas H. Lee Partners and Texas Pacific Group also may put in a bid. A second investor group, including Kohlberg Kravis Roberts & Co., Blackstone Group and Providence Equity Partners, is no longer pursuing San Jose-based Knight Ridder.

The union representing employees at nine Knight Ridder newspapers, meanwhile, said it would not be announced as a partner with whoever wins the auction. The union wants to use an ally's money and employee retirement funds to buy some or all of those nine papers.

But the union said it still hoped to strike a joint venture agreement with the winning bidder before the deal closes.

All-cash bids of $6 billion or more would make the Knight Ridder board's job easy, but lower bids might prompt directors to reject them all. In that case, the company might launch a buyback of its own shares. Knight Ridder's market capitalization at current share prices is $4.2 billion.

Another factor could be the composition of the bids. If McClatchy, which has less cash on hand than its competitors, offers a large amount of stock, the board will have some leeway to pick that chain even if the total bid is lower than rival offers. The board could argue that McClatchy stock is likely to rise, increasing the value of such a bid.

Some Knight Ridder executives and many of its employees would prefer a deal with Sacramento-based McClatchy, which publishes the Bee papers, because they believe it has a greater commitment to journalism.

Whoever wins will be likely to cut costs at the company's 32 papers, analysts and bankers said. "Cost cutting is far easier to do than growing revenue, particularly if it involves overlapping areas like corporate overhead," said Bob Broadwater, a media investment banker with Veronis Suhler Stevenson Partners.

Others said they didn't expect draconian cuts because Knight Ridder had been trimming newsroom staff around the country.

"I don't know that they can cut a lot of costs without damaging the assets," said analyst Harold Vogel of Vogel Capital Management.

Some employees said they were no longer hoping that the company stay independent. They said Knight Ridder might make deeper cuts on its own.

Indeed, Knight Ridder executives warned some employees that they expected to cut $150 million in annual costs if the chain wasn't sold.

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