The McClatchy Co. has reached a deal to buy Knight Ridder Inc., the second-largest U.S. newspaper publisher, for about $4.5 billion in cash and stock, the companies announced Monday. McClatchy will also assume about $2 billion in Knight Ridder's debt.
The deal will add several major newspapers to McClatchy's portfolio, including The Miami Herald, The Kansas City Star and the Fort Worth Star-Telegram. McClatchy's papers already include The Sacramento Bee and The News & Observer in Raleigh, N.C.
At the same time, McClatchy plans to sell 12 of Knight Ridder's 32 newspapers, including the Akron Beacon Journal in Ohio, The Philadelphia Inquirer, The Philadelphia Daily News and the San Jose Mercury News, saying that those papers don't fit the company's longstanding criteria of buying newspapers in growing markets.
McClatchy also plans to sell Knight Ridder's newspaper in St. Paul, Minn., the St. Paul Pioneer Press, in anticipation of antitrust concerns because McClatchy already owns the Star Tribune in neighboring Minneapolis.
The transaction, which had been expected, largely ends several months of uncertainty for Knight Ridder, which had been forced to explore a sale by its largest investors, who were frustrated with the company's stock performance.
However, Knight Ridder's chairman and CEO Tony Ridder noted in a statement that the "uncertainty is not over" for the 12 newspapers that will be sold, "and I regret that very much."
In an interview on CNBC, McClatchy CEO Gary Pruitt said he did not anticipate having trouble finding buyers for the Knight Ridder papers the company intends to sell, despite concerns among investors about the newspaper industry's prospects given the loss of readers and advertisers to the Internet.
"We don't think we'll have any trouble," Pruitt said. "We'll begin marketing them today."
Pruitt also said there were no plans for newsroom layoffs, though he did expect some consolidation in the corporate offices and on the Internet side. He also said McClatchy intended to hold on to Knight Ridder's stake in CareerBuilder, an online job postings business that it co-owns with Gannett and Tribune Co.
Lauren Rich Fine, a newspaper industry analyst with Merrill Lynch, said in a note to investors that while it was good news that an industry buyer was interested in Knight Ridder, the price being paid was "unlikely to produce much cheer for newspaper investors." Newspaper stocks have been out of favor on Wall Street recently over concerns about declining circulation trends, the competitive threat from the Internet and other concerns including the rising cost of newsprint.
Following the deal and the sale of the 12 Knight Ridder papers, McClatchy will end up with 32 daily newspapers and roughly 50 non-daily publications, making it the second-largest newspaper publisher in the nation following Gannett Co., publisher of USA Today.
The deal marked the latest expansion beyond its California roots for McClatchy, a smaller but highly regarded newspaper company based in Sacramento. In 1997 the company paid $1.4 billion to acquire the parent company of the Star Tribune, Cowles Media Co., and before that it acquired The News & Observer, The Anchorage Daily News in Alaska, and The News Tribune in Tacoma, Wash.
The deal values San Jose, Calif.-based Knight Ridder at $67.25 per share, including $40 per share in cash and 0.5118 of a share of McClatchy's Class A stock. The valuation is based on Friday's closing price of $53.24 for McClatchy shares. Knight Ridder's stock closed at $65 a share on Friday.
McClatchy said it will finance the transaction with $3.75 billion in bank debt, for which it has already received commitments from lenders.
McClatchy's controlling shareholders have already approved the deal, but it still faces approval from Knight Ridder shareholders.
McClatchy plans to add two Knight Ridder directors to its board.
In addition to the papers in Akron, Philadelphia, San Jose and St. Paul, McClatchy intends to sell the Times Leader in Wilkes-Barre, Pa.; the Aberdeen American News in South Dakota; the Grand Forks Herald in North Dakota; The News-Sentinel in Ft. Wayne, Indiana; the Contra Costa Times and The Monterey County Herald in California; and the Duluth News Tribune in Minnesota.
The deal will expand McClatchy's presence in the Carolinas with the addition of The Charlotte Observer. McClatchy also owns papers in South Carolina.
McClatchy beat out a rival bid from a consortium of private-equity buyout firms that included Texas Pacific Group, Bain Capital, Thomas H. Lee Partners, Hellman & Friedman and Oak Hill Partners.