Philadelphia Inquirer, Jan. 12

Potential buyers of Knight Ridder still emerging
The process is secret, but those said to be kicking the tires include a union and senior K-R managers.

By Joseph N. DiStefano
INQUIRER STAFF WRITER

Potential buyers of Knight Ridder Inc. will spend the next three weeks collecting inside information from the San Jose, Calif.-based newspaper chain and its 32 daily papers, including The Inquirer and the Philadelphia Daily News.

If they like what they see, they could bid for the company. Knight Ridder's investment bankers and disgruntled shareholders hope somebody will offer significantly more than the company's current value of about $4.3 billion on the New York Stock Exchange.

Groups of private-investment firms have signaled their interest, and Wall Street analysts and media observers have been handicapping them as well as other potential buyers.

In the fall, the company asked Goldman Sachs and Morgan Stanley to recruit new owners, under pressure from Knight Ridder's largest investor, Private Capital Management. Knight Ridder faces a profit squeeze: Newsprint and pension costs have risen, while readers are shifting from traditional printed papers to online media, which has so far been less profitable.

Knight Ridder will not comment on who has shown interest, and those who have made it to the current stage have pledged secrecy. But people familiar with the process have said news accounts listing private-equity firms that have been kicking the tires are roughly accurate. Among them:

Blackstone Group L.P. of New York and Providence Equity Partners, in partnership with the New York buyout firm Kohlberg Kravis Roberts. Blackstone and Providence invested together last year in Freedom Communications Inc., a group of daily papers including California's Orange County Register. Like other private-equity firms, the trio are in the business of buying and restructuring companies in a variety of industries and selling them at a profit, often years later. The three firms did not return calls seeking comment Jan. 11.

Thomas H. Lee Partners L.P. of Boston has been working on a joint bid with Texas Pacific Group of Dallas and other investment firms, the Daily Deal reported Jan. 9. The firms, whose separate interest in Knight Ridder was reported last month, declined to comment. "This is still very early in the process," said a person working for one of the firms in the group.

Madison Dearborn Partners L.L.C. of Chicago, Vestar Capital Partners of New York and MediaNews Group, based in Denver, have also been working together, the Financial Times of London reported last week. MediaNews, run by chief executive officer William Dean Singleton, owns mostly smaller dailies in several clusters around the country, including parts of California, New England, and south-central Pennsylvania. The three firms did not return calls seeking comment.

Besides the private-equity firms, other interested parties include:

The Newspaper Guild, a division of the Communications Workers of America union, said last month that it wanted to set up an investment group to buy the nine papers where it represents workers, including the two Philadelphia papers, in hopes of protecting jobs and benefits.

The Guild said it was willing to work with the Teamsters and other Knight Ridder unions, and with outside investors. Henry Holcomb, an Inquirer reporter who is also president of the Philadelphia Guild local, said the union's advisers were collecting information for their effort.

The Guild and some other prospective buyers are trying to find ways around Knight Ridder's determination to sell the company as a chain. A partial sale would likely trigger higher federal taxes than a deal for the whole company. That would force bidders to offer higher prices, or to wait for the buyer to spin off assets, also likely at a higher price compared with a bulk sale.

Gannett Co., McClatchy Co. and other newspaper chains have been touted as possible buyers for all or part of Knight Ridder. On Friday, mergermarket.com reported that Gannett had made an offer for Knight Ridder, but retracted the bid, possibly in favor of a separate acquisition in Britain. The report was repeated by CNBC and in other news accounts.

Gannett spokeswoman Tara Connell called the story "ridiculous," but she declined to comment on Gannett's interest in Knight Ridder, citing company policy.

McClatchy spokeswoman Elaine Lintecum declined to comment.

Senior Knight Ridder managers could try to take over the chain in partnership with others. The Los Angeles Times reported that Knight Ridder senior vice presidents Arthur Brisbane and Hilary Schneider, promoted last year as likely successors to chief executive P. Anthony Ridder, "were teaming up and seeking a backer."

But another senior Knight Ridder official called the Times account "nuts. It is not going to happen. They are not making a bid."

In New York Stock Exchange composite trading yesterday, Knight Ridder shares rose 31 cents, to $64.25.