Reading The Knight Ridder Tea Leaves

Lauren Rich Fine, analyst, Merrill Lynch: Fine is cautious and warns that “no deal could hurt the sector’s valuation.” She sees a dearth of strategic buyers. Who’s in the field? “[Gannett’s] new CEO seems more intent on investing in alternative media rather than traditional. If GCI were not to bid, that could hurt the public companies’ valuations; if they do bid, we believe there is only modest upside. … We think Tribune is an unlikely buyer given its own issues. A merger of equals with McClatchy has some appeal given the geographic overlap of properties although it would take MNI astray from its focus on growth markets and as such is unlikely; this type of deal would likely be for stock and not include a premium. Financier Phil Anschutz has launched free papers in San Francisco, and Washington, DC with Baltimore on the horizon; we know little about his operations but would have to include him on a list of potential suitors. Further, we have no real insight into Hearst or Newhouse, two large private newspaper companies, but think they would not be interested.”

James Walden, analyst, Morningstar (AP/USA Today): “We’re pleased to see that management is seriously considering the interest of shareholders who just weren’t happy with the status quo. … Following through with a decision like this helps bridge what we perceive as a gap between its intrinsic value and how the market valued it.”

Daniel Gross, Slate: “How about new media companies with soaring stocks that might like to be bigger players in the content industry? Yahoo! and Google could easily digest a comparative minnow like Knight Ridder. At $4.25 billion, Knight Ridder’s present market value represents less than 8 percent of Yahoo!’s and less than 4 percent of Google’s. But, again, what would be the point? Companies with explosive growth and massive margins would simply be wasting cash to buy into slower-growth, lower-margin businesses.”

WSJ (sub. req.): “Those preparing for a deal expect potentially big changes should private-equity firms wind up owning Knight Ridder. If one of those firms wins an auction, “it’s going to make the paper the lowest-common denominator it can” by cutting costs, said one banker involved in the newspaper industry.”

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