Possible Knight Ridder Sale Brings Unlikely Suitors

For decades, the Knight Ridder newspaper company was known for its swagger. Its 32 dailies could boast of Pulitzers and brash columnists like Carl Hiaasen of The Miami Herald. But with the stock price sagging and impatient investors demanding its sale, some unlikely suitors are emerging.

Linda Foley, a former Knight Ridder reporter and the president of the Newspaper Guild of America, says big cuts have eroded the quality of the company’s papers.

"None of these newspapers lose revenue," Foley says. "They all make money. They just don't make enough money to suit the people on Wall Street."

Foley's union represents more than 2,000 employees at Knight Ridder properties, which include big papers in Philadelphia, San Jose, Calif., and St. Paul, Minn. Foley says journalists are anxious about who the next owner might be.

"We think we have a better idea,” Foley says. "We have a stake in this, and we want to be a player here."

The guild would like to buy nine newspapers. But employee-owned papers aren't common, and Polk Laffoon, Knight Ridder's chief spokesman and its corporate secretary, says they're not going to happen in this case.

"Without wanting to be critical of the unions and their efforts, I think it is a nonstarter," Laffoon says. "Knight Ridder is seeking strategic options for the whole company and there has been no discussion of disposing of different portions of the company in separate transactions."

Knight Ridder's profit margin is a bit above 19 percent, according to a recent analysis by Morgan Stanley. That's a healthy rate for most businesses, but it's not as much as some competitors. And it's not increasing. Circulation is eroding and online competitors are siphoning ads away.

Knight Ridder CEO Anthony Ridder has sought to stave off shareholder pressure with a decade-long effort to cut costs. National and foreign staffs have been reduced. The San Jose Mercury News and The Philadelphia Inquirer slashed their staffs by 15 percent just this year.

James Naughton, the former executive editor at The Inquirer, says readers are noticing.

"Knight Ridder's current leadership is focused more on the business aspects of journalism than on the news-gathering aspects," Naughton says.

Naughton is leading a group of Knight Ridder alumni -- executives, publishers, editors and reporters -- who own shares. (Bill Marimow, NPR’s acting vice president for news, is among the former Knight Ridder journalists who have joined Naughton’s group.) They're hoping to nominate candidates for the company's corporate board to influence who gets to buy Knight Ridder -- if it's actually sold.

Knight Ridder's Laffoon says there's no way they can win.

"The fact of the matter is that 90 percent of Knight Ridder's stock -- or more -- is owned by large financial institutions, and they're going to vote for people that they think will run the company with the same kind of financial goals that they have," Laffoon says.

But some bidders may have different goals. The Philadelphia-based Pew Charitable Trusts spend more than $200 million a year on ambitious projects, including several media initiatives. CEO Rebecca Rimel says Pew intends to serve as a catalyst for civic leaders in Philadelphia to help ensure that any new ownership of the Inquirer would serve readers well.

"Philadelphia is going to need to get this right, as are other communities across the country," Rimel says. "We have to put wise heads together to think about how the civic purpose and the democratic purpose of newspapers is served, first and foremost."

Like the Newspaper Guild of America, Pew is interested in local ownership that puts less emphasis on profits. One such example is in Florida, where the non-profit Poynter Institute has a controlling stake in the St. Petersburg Times.

But the people on the Knight Ridder board who evaluate offers may not care.

Naughton, the former Inquirer editor, says he realizes he may not be able to get new directors on the company's board.

"This may be quixotic," Naughton says. "It may be entirely unrealistic to try either to have a voice in the sale if there is one, or to influence the course of the company. But again, it beats the heck out of not having any opportunity to try."

Knight Ridder's board recently set bigger bonuses for 2006 for its top executives. The company chose not to comment on the decision.

Some Wall Street analysts say the sale of Knight Ridder could be just the start of a big shake-up in the industry.

Lauren Rich Fine of Merrill Lynch suggests shareholders of the rival Tribune Company might get more value if the company sold off its less profitable papers. Several months ago, the producer David Geffen said he wanted to buy the Tribune's Los Angeles Times. And Robert Embry, president of the Baltimore-based Abell Foundation in Baltimore, says his group would be interested in buying The Baltimore Sun, if Tribune were willing to sell.

But Tribune CEO Dennis FitzSimons turned down Geffen's inquiry about the Times earlier this year. And in early December, FitzSimons told investment analysts that Tribune was considering the sale only of "non-core" assets. That was thought to be a sign that Tribune doesn't intend to sell off any newspapers, which are considered part of the company's core business.