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Knight Ridder Rides In
The unhappy minority owner of The Seattle Times acquires two other state newspapers. Aug. 10, 2005
Washington's New Newspaper Conglomeration
After the deal is consummated, McClatchy of Sacramento will be the state's most widespread chain owner because of its $4.5 billion purchase of San Jose-based Knight Ridder. Here will be the holdings in Washington of McClatchy and the Seattle Times Co., which still holds a lead in statewide circulation.
McClatchy
The News-Tribune, Tacoma (123,213)
Tri-City Herald, Kennewick-Richland-Pasco (41,634)
The Olympian, Olympia (32,808)
Bellingham Herald (23,374)
Total state weekday circulation: 221,029
Seattle Times Co.
The Seattle Times (215,502)
Yakima Herald-Republic (37,136)
Walla Walla Union-Bulletin (14,113)
Total state weekday circulation: 266,751
Source: Audit Bureau of Circulations, averaged for the six months ending Sept. 30, 2005
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Ask around Seattle, and Gary Pruitt probably ranks somewhere around Mayor Greg Nickels' barber in name recognition. But Pruitt, whose Sacramento-based McClatchy Co. engineered the $4.5 billion buyout this week of another California media giant, Knight Ridder, is suddenly the city's and the state's newest media baron. McClatchy's holdings now include Washington's largest chain of daily newspapers—Tacoma's News Tribune, the Tri-City Herald in Kennewick, The Olympian in the state capital, and the Bellingham Herald—as well as 49.5 percent of the voting stock in the Seattle Times Co., whose properties include The Seattle Times, the Yakima Herald-Republic, and the Walla Walla Union-Bulletin.
That makes Pruitt, a 48-year-old First Amendment attorney who is McClatchy's chief executive, a bigger media mogul in Washington than Frank Blethen, the Times publisher and patriarch of the Blethen family, which has controlled 50.5 percent of the Times Co. since 1929. The difference, of course, is that single percentage point of Times Co. voting stock that the Blethens own and which McClatchy will not, giving the Blethens complete control of the company.
The Knight Ridder–Blethen alliance has been famously uneasy. Executives from San Jose–based Knight Ridder sat through years of Times Co. board meetings, grinding their teeth while Frank Blethen told them how much of the company's profit the Blethens would give them in annual dividends—never more than $4 million a year, according to court records. When the Californians complained, the Blethens voted them down. "It was," recalls a member of the Ridder clan, who sat on the Times board through the 1990s, "an incredibly frustrating experience."
Now it is Pruitt's turn. Or maybe not.
Despite McClatchy's assurances to media analysts Monday, March 13, that it sees no legal problems with owning the Tacoma News Tribune and a minority stake in the Times, some antitrust experts believe the arrangement could raise issues. The News Tribune competes head-to-head with the Times and its joint-operating agreement (JOA) partner, the Seattle Post-Intelligencer, in Seattle's south suburbs, and the fact of McClatchy executives shuttling the 30 miles between the Times Co. boardroom in Seattle and the News Tribune in Tacoma, especially with the Times holding antitrust immunity under the JOA with the P-I, is likely to draw the attention of the U.S. Justice Department's antitrust division.
Jack Kirkwood, an antitrust specialist at Seattle University's law school, points out that in supermarket mergers it is common for federal regulators to force divestiture of overlapping stores. "The ability of McClatchy, which owns the TNT, to also hold several seats on the Times board could raise significant competitive issues with the government," Kirkwood says. One likely affected party, Peter Horvitz, owner of the King County Journal, which serves the east and south suburbs, says he's waiting to see how federal antitrust officials sort out the arrangement before deciding whether to formally complain.
McClatchy's shareholders might also have something to say about how long to keep their new Times holding. Herman Ridder bought his 49.5 percent of the Times for $1.5 million in 1929, assuming Blethen's financially inept grandfather, C.B. Blethen, would eventually be forced to sell him the rest. That didn't happen, but the investment was small, and Knight Ridder held on to its stake, hoping someday to buy out the Blethens.
McClatchy won't say how much it paid for Knight Ridder's stake in the Times Co. But last November, when Knight Ridder's major shareholders forced the company onto the sales block, its financial adviser, Morgan Stanley, calculated the fair market value of Knight Ridder's Times Co. holding at $300 million. (In addition to the three dailies in this state, the Times Co. owns three dailies in Maine—the Portland Press Herald and Maine Sunday Telegram, the Kennebec Journal in Augusta, and the Morning Sentinel in Waterville.) When you are bidding on a package deal like Knight Ridder, newspaper brokers say, conventional wisdom usually dictates that you take the fair market value of an asset like the 49.5 percent share in the Times Co. and offer half. Under that scenario, McClatchy would have paid about $150 million for its new Times stake.
At the current dividend rate, McClatchy would have done better putting cash into Washington Mutual CDs. McClatchy's shareholders, who reacted negatively to the Knight Ridder deal, are likely to lose patience fast if Pruitt can't convince the Blethens to loosen their grip on the Times Co.'s dividend.
How much market can there be for a newspaper company locked in a death struggle with P-I owner Hearst, a company 10 times its size?
Still, who would want to buy a minority stake in the Times Co.? How much market can there be for a newspaper company locked in a death struggle with P-I owner Hearst, a company 10 times its size? Who wants to partner with a Seattle Times Co. that is run by a family whose autocratic style doesn't leave room for minority shareholders? When the Blethens decided to buy the three newspapers in their ancestral home state of Maine—adding more than $200 million in debt to the corporate balance sheet in the late 1990s—Knight Ridder executives on the Times board say they were told about the purchase after it had been arranged.
