McClatchy deal leaves much uncertainty in wake of Knight-Ridder "resale"

Posted by Ben Compaine

A day after the official announcement of McClatchy’s intended acquisition of the much larger Knight-Ridder, some of the dust is starting to settle. It reveals a not very pretty picture.

First, the assurances that McClatchy CEO Gary Pruitt made on Monday that “We have no plans for layoffs or across-the-board cuts" in the newsrooms is rather disingenuous given that he also confirmed that McClatchy would sell 12 of the 32 Knight-Ridder dailies, ideally on the same day the acquisitions is closed. Indeed, Pruitt added "McClatchy would not operate those papers for even one day."  Thus, his statement that they would not close any newspapers, even the troubled Philadelphia Daily News, is likewise meaningless, as any of the possible buyers of the Philadelphia papers are not bound by any such promise.

And McClatchy is generally rated one of the most editorially conscientious publishers.

Second, McClatchy is trying to thread a needle: On the one hand it must assure its stockholders that its purchase will lead to a growing, prosperous newspaper company. Thus Pruitt talks about the growth markets many of the Knight Ridder papers are in.

Pruitt pointed out that the average rate of household growth over the next five years in the markets for the 20 papers the company would keep is 11.1%, compared to the average growth rate for newspapers in the United States is 7.5%.

On the other hand, in the markets of the dozen papers that McClatchy plans to divest the household growth is 4.8% for the next five years. Yet if it is to attract buyer interest, it must put a positive spin on these papers that do not fit its “long-standing acquisition and operating strategies." In other words, they’re dogs (financially, not necessarily editorially).

Of the 32 Knight-Ridder daily newspapers, McClatchy will sell 38% of the total. However, they account for 44% of Knight-Ridder’s daily circulation

The 12 McClatchy “rejects” can no doubt be sold. At some price virtually anything can be. While some of the pundits have proclaimed the 30% premium that Knight-Ridder fetched over its value before it put itself up for sale as a sign that there is a bit of life left in the industry, there is little likelihood that buyers of the 12 orphaned K-R papers will leave them untouched once they buy. Curiously, The Wall Street Journal (sub. required) reported that The Newspaper Guild-Communication Workers of America, which represents workers at Knight Ridder papers, said it is interested in buying some or all of the 12 papers. “Union President Linda Foley says it ‘intends to be aggressive about making an offer’ and is contacting McClatchy about its interest. ‘We're reaching out to them as we speak,’ she said yesterday evening.’” Now that would be fascinating to see.

Then again, Pruitt can also see how much he can get for the 12 on eBay—with no reserve.