CTroyMathis
11 November 2005, 04:34 PM
Letter might put Star-Telegram on auction block
Sarah McClellan-Brandt - November 07, 2005
Visit: http://www.fwbusinesspress.com/display.php?id=4019
In a story that changed practically by the minute this past week, Knight Ridder Inc., owner of the Fort Worth Star-Telegram, hired the Goldman Sachs investment company to explore the possibilities regarding its future — which might include sale.
If sold, Knight Ridder would trigger one of the largest newspaper auctions in the history of industry and country.
It is the second largest newspaper owner in the country and the local effect could be that Fort Worth’s only daily newspaper will be sold, as well.
Some experts doubt that any company except Gannett is well-heeled enough to buy the company which might command $5 to $6 billion. Others say the buyers might be private equity players or someone from the “new media” segment: E-Bay or Yahoo, for instance.
Locally, companies such as David Bonderman’s Texas Pacific Group or Robert Bass’ Keystone group would be capable of such a purchase.
While many Wall Street analysts question if there is buyer who could handle a multi-billion dollar sale, there is recent precedent. Central Newspapers, which owned the Indianapolis Star and other papers in Arizona, sold to Gannett within the last five years for about $6 billion.
By the close of business on Nov. 3, the company’s three largest shareholders — representing almost 40 percent of the company’s ownership — had told the company they want it offered for sale. A Nov. 1 letter written to the board of directors at Knight Ridder Inc., which owns 32 daily newspapers and dozens of others nationwide — set off an almost industry-wide chain reaction.
The effect of the letter had newspaper stocks moving up after what had been an otherwise tough year on Wall Street and experts predicting industry consolidation.
The letter was from Bruce Sherman, chief executive officer of Private Capital Management (PCM) L.P., a company that owns nearly 19 percent of Knight Ridder’s stock — 12.8 million shares — making it the company’s largest shareholder. He suggested in his letter that the company should sell due to Knight Ridder’s poor performance, a falling stock price over the past three months, and limited revenue growth industry-wide.
Sherman also said there was difficulty in “realizing the fair value of the company for its shareholders.”
The letter sent tremors through the newspaper industry, and by Thursday, Nov. 3, Sherman had been joined by Southeastern Asset Management Inc., holder of over 8 percent of all outstanding shares and Harris Associates L.P., holder of another 8 percent of the stock.
In his letter, Sherman wrote: “A significant and persistent disparity exists between the fair value of the company’s assets and the trading range of its shares. In our view, the actions taken to date have not adequately addressed a number of significant issues facing the company.”
Among those issues he listed were consolidation of traditional sources of print advertising revenue, redirection of advertising dollars to other media, Knight Ridder’s “unexceptional” operating margins, and the company’s lack of a nationally read paper that could be leveraged in an online market.
Knight Ridder’s operating margins have lagged industry standards for decades.
Sherman’s letter implied that PCM would either demand changes at the executive level and in the composition of the company’s board, or back a hostile takeover, warning that it would, “strongly consider supporting more aggressive efforts that might be initiated by other parties.”
Industry sources stress that it is highly possible that Knight Ridder properties could be separated individually or in clusters and sold piecemeal. They also believe that shareholders might be satisfied at least temporarily if the company Chairman Tony Ridder — who owns less than 2 percent of the company and who is a member of one of two families who formed the company — steps down from his executive role.
The local impact could mean the Star-Telegram might either become part of a new corporate owner’s portfolio or be sold separately. The latter is considered less likely.
The news pushed Knight Ridder’s stock up $4.62, or 8.7 percent, to $58 in just one day. By Thursday, Nov. 3, at press time, its shares had jumped to $61.55.
Stuart Rossmiller, an analyst for Merrill Lynch, wrote in a Nov. 2 report on the issue that Knight Ridder will likely respond to the move in one of three ways. The first, which the report said is the most likely, is a leveraged recapitalization in which the company adds a turn of leverage in the near-term and uses the proceeds to aggressively repurchase shares. The second prediction is that there is a strategic buyer — the report predicts Gannet Co., a competitor, is the most likely — will come up with a cash offer. The third possibility is a leveraged buyout by private equity.
Sherman declined comment for this article. PCM’s general counsel, Chad Atkins, said company policy is to comment only in public filings.
Knight Ridder also declined comment.
Potential buyers of Knight Ridder did comment, but asked not be identified because they said they do not want to taint the process.
“This company owns franchise newspapers in good markets outside of Miami and Philadelphia, and those other newspapers are highly marketable,” said a representative of a large, North Texas private investment group.
“Look, this is a poorly run company, and a good turnaround executive will increase profits dramatically with the company in the first twelve months. Its operating costs are way out of line and a good executive will fix that. Newspaper people mistakenly believe it takes some magic or understanding of the Holy Grail to run one of these businesses. It doesn’t, and there is tremendous upside potential here.”
Industry experts have predicted that Knight Ridder could fetch a multiple of 10 to 15 times its earnings. If it sold for 13 times or about $80 a share, that would bring the sale price for the whole company to $5.6 billion.
Industry experts said the Star-Telegram — if sold alone, which is considered unlikely — could command perhaps as much as $750 million to $1 billion.
“Unbelievable,” said a former local financial executive when he heard the estimated value of the Star-Telegram. “I believe the Carter family sold it in the late 1970’s for about $125 million and the buyer got about $50 million of that back after the purchase.”
The Carter family sold the newspaper and its broadcast holdings WBAP Radio and its television station to Capital Cities Communications in the mid 1970’s. The company sold the television station. Capital Cities went on to purchase ABC and then sold the entire company to Disney in the mid-1990’s.
Another industry source told the Business Press that the Star-Telegram would be among the most sought after newspapers in a possible sale, estimating its revenues around $300 million annually, with profits that could range from $65 million to $80 million. A source at the Star-Telegram said profits could decline as much as three percent to five percent from last year, but confirmed the paper is one of a few of Knight Ridder’s major profit producers.
Dragging down the company’s profits are two daily papers in Philadelphia that could be losing up to $100 million per year, one analyst said.
The company warned in September that it would cut 100 jobs at the money losers — the Philadelphia Inquirer and the Philadelphia Daily News — shortly after releasing a notice that third quarter profits would be down because of weak advertising in Philadelphia, Fort Worth, and Kansas City, Mo.
The source also said the company doesn’t do well when other print competition comes to town.
“In Minnesota, for instance, the company lost the battle in St. Paul with the Minneapolis Star and Tribune years ago,” he said. “And in other markets they have not fared well when challenged directly. It is a company poised for dramatic change and a turnaround.”
Officials at the Star-Telegram, the fifth largest in Knight Ridder, say they haven’t heard from Knight Ridder and have no idea what will happen — which could be nothing.
“We don’t have a say in this,” said Wesley Turner, president and publisher. “The morale in the newsroom is pretty high, though. It’s just business. This is the world we live in when you’re in a publicly traded company.”
The chief executive officer of a company that could be a possible bidder on Knight Ridder, who asked to withhold his name, said he has little doubt that Fort Worth’s daily paper will be affected by what has happened.
“Either the paper gets a new corporate owner, which is most likely, or someone steps up and buys it as a stand-alone if the company is broken up in the sale,” he said. “I looked at several of these papers when they were sold to Knight Ridder, and I can tell you Fort Worth was one of the jewels. I thought — and Tony Ridder said it too — the Star-Telegram was probably the best-run major market newspaper in the country when your publisher ran it. And it probably continues to do very well under his successor.”
The newspaper and print-media industry has been under pressure in the last year, but Sherman’s letter may be the first step to turning that around, according to an analyst report released Nov. 2 by Morgan Stanley.
“Public industry multiples have dropped to almost historically low levels,” stated the report ... this newly public pressure coupled with a large gap between private and public market values compel us to upgrade this stock.”
The company upgraded the stock to a target price of $75, a 29 percent potential increase, but also reported, despite its upgrade, that it is skeptical a sale will occur.
The Nov. 3 issue of The Wall Street Journal called what is happening at Knight Ridder a new beginning for newspapers, saying the potential of a Knight Ridder sale could be “the first shoe to drop in the long-talked-about consolidation of the newspaper industry.”
An article in The New York Times on the same day reported that stock prices for large newspaper companies Gannett, The New York Times, Tribune Co. and Knight Ridder have all fallen significantly in the past year. The article said that this could be the catalyst the market was waiting for to stimulate the industry, but a Goldman Sachs analyst reported that the company doesn’t view the development as a step in the process of significant industry consolidation.
“In a takeover or LBO [leveraged buy-out] scenario, we believe KRI could theoretically be worth $66-$70/sh,” the report said. “Short covering and takeover speculation could easily push KRI shares higher near-term, but given challenging industry fundamentals, we’d stay on the sidelines.”
Contact McClellan-Brandt at smcclellan@bizpress.net.
Editor’s Note: The Fort Worth Business Press story on the potential sale of Knight Ridder and the Fort Worth Star-Telegram relies on anonymous sources to a degree that is unusual for our newspaper. We chose to honor requests for anonymity because our sources fell generally into two categories: potential bidders on either the entire company or parts of it, including the Star-Telegram, and persons who believed identifying them might hinder their careers. The bidders believed that discussing this topic on the record might adversely affect their ability to be successful, should they bid.
Sarah McClellan-Brandt - November 07, 2005
Visit: http://www.fwbusinesspress.com/display.php?id=4019
In a story that changed practically by the minute this past week, Knight Ridder Inc., owner of the Fort Worth Star-Telegram, hired the Goldman Sachs investment company to explore the possibilities regarding its future — which might include sale.
If sold, Knight Ridder would trigger one of the largest newspaper auctions in the history of industry and country.
It is the second largest newspaper owner in the country and the local effect could be that Fort Worth’s only daily newspaper will be sold, as well.
Some experts doubt that any company except Gannett is well-heeled enough to buy the company which might command $5 to $6 billion. Others say the buyers might be private equity players or someone from the “new media” segment: E-Bay or Yahoo, for instance.
Locally, companies such as David Bonderman’s Texas Pacific Group or Robert Bass’ Keystone group would be capable of such a purchase.
While many Wall Street analysts question if there is buyer who could handle a multi-billion dollar sale, there is recent precedent. Central Newspapers, which owned the Indianapolis Star and other papers in Arizona, sold to Gannett within the last five years for about $6 billion.
By the close of business on Nov. 3, the company’s three largest shareholders — representing almost 40 percent of the company’s ownership — had told the company they want it offered for sale. A Nov. 1 letter written to the board of directors at Knight Ridder Inc., which owns 32 daily newspapers and dozens of others nationwide — set off an almost industry-wide chain reaction.
The effect of the letter had newspaper stocks moving up after what had been an otherwise tough year on Wall Street and experts predicting industry consolidation.
The letter was from Bruce Sherman, chief executive officer of Private Capital Management (PCM) L.P., a company that owns nearly 19 percent of Knight Ridder’s stock — 12.8 million shares — making it the company’s largest shareholder. He suggested in his letter that the company should sell due to Knight Ridder’s poor performance, a falling stock price over the past three months, and limited revenue growth industry-wide.
Sherman also said there was difficulty in “realizing the fair value of the company for its shareholders.”
The letter sent tremors through the newspaper industry, and by Thursday, Nov. 3, Sherman had been joined by Southeastern Asset Management Inc., holder of over 8 percent of all outstanding shares and Harris Associates L.P., holder of another 8 percent of the stock.
In his letter, Sherman wrote: “A significant and persistent disparity exists between the fair value of the company’s assets and the trading range of its shares. In our view, the actions taken to date have not adequately addressed a number of significant issues facing the company.”
Among those issues he listed were consolidation of traditional sources of print advertising revenue, redirection of advertising dollars to other media, Knight Ridder’s “unexceptional” operating margins, and the company’s lack of a nationally read paper that could be leveraged in an online market.
Knight Ridder’s operating margins have lagged industry standards for decades.
Sherman’s letter implied that PCM would either demand changes at the executive level and in the composition of the company’s board, or back a hostile takeover, warning that it would, “strongly consider supporting more aggressive efforts that might be initiated by other parties.”
Industry sources stress that it is highly possible that Knight Ridder properties could be separated individually or in clusters and sold piecemeal. They also believe that shareholders might be satisfied at least temporarily if the company Chairman Tony Ridder — who owns less than 2 percent of the company and who is a member of one of two families who formed the company — steps down from his executive role.
The local impact could mean the Star-Telegram might either become part of a new corporate owner’s portfolio or be sold separately. The latter is considered less likely.
The news pushed Knight Ridder’s stock up $4.62, or 8.7 percent, to $58 in just one day. By Thursday, Nov. 3, at press time, its shares had jumped to $61.55.
Stuart Rossmiller, an analyst for Merrill Lynch, wrote in a Nov. 2 report on the issue that Knight Ridder will likely respond to the move in one of three ways. The first, which the report said is the most likely, is a leveraged recapitalization in which the company adds a turn of leverage in the near-term and uses the proceeds to aggressively repurchase shares. The second prediction is that there is a strategic buyer — the report predicts Gannet Co., a competitor, is the most likely — will come up with a cash offer. The third possibility is a leveraged buyout by private equity.
Sherman declined comment for this article. PCM’s general counsel, Chad Atkins, said company policy is to comment only in public filings.
Knight Ridder also declined comment.
Potential buyers of Knight Ridder did comment, but asked not be identified because they said they do not want to taint the process.
“This company owns franchise newspapers in good markets outside of Miami and Philadelphia, and those other newspapers are highly marketable,” said a representative of a large, North Texas private investment group.
“Look, this is a poorly run company, and a good turnaround executive will increase profits dramatically with the company in the first twelve months. Its operating costs are way out of line and a good executive will fix that. Newspaper people mistakenly believe it takes some magic or understanding of the Holy Grail to run one of these businesses. It doesn’t, and there is tremendous upside potential here.”
Industry experts have predicted that Knight Ridder could fetch a multiple of 10 to 15 times its earnings. If it sold for 13 times or about $80 a share, that would bring the sale price for the whole company to $5.6 billion.
Industry experts said the Star-Telegram — if sold alone, which is considered unlikely — could command perhaps as much as $750 million to $1 billion.
“Unbelievable,” said a former local financial executive when he heard the estimated value of the Star-Telegram. “I believe the Carter family sold it in the late 1970’s for about $125 million and the buyer got about $50 million of that back after the purchase.”
The Carter family sold the newspaper and its broadcast holdings WBAP Radio and its television station to Capital Cities Communications in the mid 1970’s. The company sold the television station. Capital Cities went on to purchase ABC and then sold the entire company to Disney in the mid-1990’s.
Another industry source told the Business Press that the Star-Telegram would be among the most sought after newspapers in a possible sale, estimating its revenues around $300 million annually, with profits that could range from $65 million to $80 million. A source at the Star-Telegram said profits could decline as much as three percent to five percent from last year, but confirmed the paper is one of a few of Knight Ridder’s major profit producers.
Dragging down the company’s profits are two daily papers in Philadelphia that could be losing up to $100 million per year, one analyst said.
The company warned in September that it would cut 100 jobs at the money losers — the Philadelphia Inquirer and the Philadelphia Daily News — shortly after releasing a notice that third quarter profits would be down because of weak advertising in Philadelphia, Fort Worth, and Kansas City, Mo.
The source also said the company doesn’t do well when other print competition comes to town.
“In Minnesota, for instance, the company lost the battle in St. Paul with the Minneapolis Star and Tribune years ago,” he said. “And in other markets they have not fared well when challenged directly. It is a company poised for dramatic change and a turnaround.”
Officials at the Star-Telegram, the fifth largest in Knight Ridder, say they haven’t heard from Knight Ridder and have no idea what will happen — which could be nothing.
“We don’t have a say in this,” said Wesley Turner, president and publisher. “The morale in the newsroom is pretty high, though. It’s just business. This is the world we live in when you’re in a publicly traded company.”
The chief executive officer of a company that could be a possible bidder on Knight Ridder, who asked to withhold his name, said he has little doubt that Fort Worth’s daily paper will be affected by what has happened.
“Either the paper gets a new corporate owner, which is most likely, or someone steps up and buys it as a stand-alone if the company is broken up in the sale,” he said. “I looked at several of these papers when they were sold to Knight Ridder, and I can tell you Fort Worth was one of the jewels. I thought — and Tony Ridder said it too — the Star-Telegram was probably the best-run major market newspaper in the country when your publisher ran it. And it probably continues to do very well under his successor.”
The newspaper and print-media industry has been under pressure in the last year, but Sherman’s letter may be the first step to turning that around, according to an analyst report released Nov. 2 by Morgan Stanley.
“Public industry multiples have dropped to almost historically low levels,” stated the report ... this newly public pressure coupled with a large gap between private and public market values compel us to upgrade this stock.”
The company upgraded the stock to a target price of $75, a 29 percent potential increase, but also reported, despite its upgrade, that it is skeptical a sale will occur.
The Nov. 3 issue of The Wall Street Journal called what is happening at Knight Ridder a new beginning for newspapers, saying the potential of a Knight Ridder sale could be “the first shoe to drop in the long-talked-about consolidation of the newspaper industry.”
An article in The New York Times on the same day reported that stock prices for large newspaper companies Gannett, The New York Times, Tribune Co. and Knight Ridder have all fallen significantly in the past year. The article said that this could be the catalyst the market was waiting for to stimulate the industry, but a Goldman Sachs analyst reported that the company doesn’t view the development as a step in the process of significant industry consolidation.
“In a takeover or LBO [leveraged buy-out] scenario, we believe KRI could theoretically be worth $66-$70/sh,” the report said. “Short covering and takeover speculation could easily push KRI shares higher near-term, but given challenging industry fundamentals, we’d stay on the sidelines.”
Contact McClellan-Brandt at smcclellan@bizpress.net.
Editor’s Note: The Fort Worth Business Press story on the potential sale of Knight Ridder and the Fort Worth Star-Telegram relies on anonymous sources to a degree that is unusual for our newspaper. We chose to honor requests for anonymity because our sources fell generally into two categories: potential bidders on either the entire company or parts of it, including the Star-Telegram, and persons who believed identifying them might hinder their careers. The bidders believed that discussing this topic on the record might adversely affect their ability to be successful, should they bid.