Knight Ridder Board Must Weigh Bids, Chain's Value

The easy job for directors of newspaper giant Knight Ridder Inc. this weekend may be choosing the best of at least two offers for the company, experts said Friday.

The tougher question: whether to sell at all.

Neither Knight Ridder nor its suitors are talking, but news accounts have identified McClatchy Co., owner of the Sacramento Bee and 11 other daily newspapers, as the top bidder. The deal could turn the mid-size Sacramento-based company into the nation's No. 2 newspaper chain in terms of circulation, after McLean, Va.-based Gannett Co.

McClatchy reportedly is offering a combination of cash and stock worth $65 to $70 a share. That means spending $4.4 billion to $4.7 billion for San Jose-based Knight Ridder, which publishes the San Jose Mercury News, the Philadelphia Inquirer, the Miami Herald and 29 other dailies.

Shares in both companies surged Friday as investors welcomed the possible deal four months after the company invited bidders. Knight Ridder rose $2.34, or nearly 4%, to $65. McClatchy rose $1.31, or 2.5%, to $53.24.

But some analysts are unenthusiastic.

"At the price they've been talking, it wouldn't surprise me if the Knight Ridder board decided to pull back and not sell the company," said veteran industry analyst John Morton, who described the McClatchy bid as "a low-ball offer."

The price reflects undue investor pessimism about the industry, said Morton, who believes that newspapers stand to benefit from increasing Internet revenue even as their traditional print business declines. Knight Ridder directors could decide instead to repurchase shares, he said.

Others say the reported McClatchy offer, worth as much as 10 times Knight Ridder's earnings last year, is a respectable price, given the newspaper industry's long circulation slump.

"We think it's very likely the company will sell," said Michael Kupinski, an analyst with A.G. Edwards & Sons Inc. Kupinski said the reported bid was probably in his firm's target range of $68 to $74 a share.

Although much smaller than its target, McClatchy "has a very pristine balance sheet," he said, and is able to borrow -- and repay -- what it would need to buy Knight Ridder.

Knight Ridder put itself on the auction block in mid-November after investors -- notably Private Capital Management, its largest shareholder -- complained about its persistently low stock price.

The firm's chief executive, Bruce Sherman, did not return calls for comment.