News-Record.com

So the McClatchy chain is buying the Knight Ridder newspaper chain, making McClatchy the nation's second-largest chain (behind Gannett). For those of us in the Carolinas, this deal affects The Charlotte Observer, The State in Columbia and The Sun News in Myrtle Beach, among other properties. (The News & Observer in Raleigh was purchased by McClatchy several years ago.)

On the surface, this was, I guess you could say, the least-bad outcome for many of the 32 Knight Ridder properties involved: McClatchy is a publicly traded corporation, but it has a reputation for journalistic excellence and for not being absolutely bloodthirsty about its profit margins. It also is saying, at least for now, that while it will be looking for efficiencies, it will not be laying anyone off. I talked to a longtime acquaintance of mine in The Charlotte Observer's newsroom yesterday, and he said the newsroom was the happiest he had seen it in a long time.

But 12 of the KR papers will be resold -- primarily papers in markets such as Philadelphia that McClatchy doesn't see as growing fast enough to suit it. The St. Paul, Minn., Pioneer Press will be sold because of antitrust concerns related to McClatchy's ownership of the Minneapolis Star-Tribune. (McClatchy probably would have preferred simply to close it so that it could enjoy an effective monopoly in the Twin Cities and boost its ad rates, but those same antitrust concerns probably would preclude doing so.) But also going on the block is the San Jose Mercury News, the erstwhile Knight Ridder flagship, as well as the Contra Costa, Calif., paper. It's not clear to me why the Merc is being resold. True, ad revenue took a hard hit during the dot-com bust and its current margins now hover around 8% -- low for the industry. But, as analyst John Morton points out, it serves some of the wealthiest demographics in the country and a market that almost certainly will grow vigorously in the long term. Perhaps it has to do with McClatchy's already owning papers in Modesto and Sacramento. I don't know.

I'm no expert analyst, but if I had to guess, I'd say the future is both cloudier and, probably, grimmer for staffers at the 12 papers being resold. Those papers are going to have to fetch a premium to satisfy McClatchy (and help it pay down some of its debt, including $2 billion in Knight Ridder debt it assumed as part of the takeover). Thus it is likely that anyone who buys those papers will be cutting expenses big-time to make his own deal work, unless they take those papers private to avoid the kind of market pressures that undid Knight Ridder. But even going private likely would require a ton of debt. I think the best a lot of folks at those papers can hope for is a generous buyout offer, and I see no particular reason to think even that is in the offing.

The Knight Ridder sale was put into motion in November, when KR's largest shareholder, Private Capital Management, demanded that KR do something about its stock price, then $52 a share. Under the terms of the McClatchy deal, PCM will be getting $67.50 a share -- a 30% profit for four months of other people's work.

It would be nice to think PCM head Bruce Sherman will be satisfied with that. But, as The Blogging Journalist points out, Sherman also is McClatchy's largest shareholder, at 35.6%. McClatchy's price dropped about 3%, down $1.51 to $51.55, on Monday, and has lost almost 13% so far this year. Might Sherman make McClatchy the same "offer" he made KR?

UPDATE: Here's a roundup of other people's takes on all this, including some pure speculation that, if it came to pass, would be really interesting.

UPDATE: Wow. Former Philly ad exec Brian Tierney says he has commitments "in excess of $100 million" in an effort to buy Philadelphia's Inquirer and Daily News from McClatchey. The plan would be "a sort of Green Bay Packers kind of ownership," he says -- that National Football League franchise is owned by shareholders, almost all of them Green Bay residents, while other franchises are owned by individuals or small partnerships -- and would even partner with the Newspaper Guild, the union, to make it happen. I could spend a day listing the obstacles in the path of this plan, but if Tierney's group can pull it off, I think a lot of people in and around Philly would be very, very happy.