Newspaper publisher Knight Ridder Inc. said Monday that it would explore a possible sale of the company, bowing to demands from two large investors unhappy with its depressed stock price.
Knight Ridder, which publishes newspapers including the Philadelphia Inquirer and San Jose Mercury News, said it is working with Goldman, Sachs & Co. in exploring strategic alternatives. It cautioned that “there can be no assurance” it will reach any type of deal.
The publisher’s announcement comes amid pressure from two of its largest shareholders to boost the value of the company. Knight Ridder’s stock price is now down about 6 percent this year but had dropped as much as 20 percent as recently as late October, sharply underperforming the broader stock market.
The recent uptick in Knight Ridder’s shares has only occurred since Private Capital Management, which controls 19 percent of the company’s stock and is its largest shareholder, first publicly demanded that the publisher consider a sale on Nov 1.
Private Capital, a Naples, Florida-based investment firm formed by Legg Mason Inc., last week followed up its demand by threatening to nominate its own directors and meet with other shareholders because of Knight Ridder’s “limited response to the serious concerns” it had previously raised.
Private Capital declined to comment Monday.
Harris Associates, a Chicago-based firm that controls 8.15 percent of the stock and is the third-largest shareholder, has also called on Knight Ridder to put itself up for sale.
Because of the calls for a sale, Knight Ridder’s stock market capitalization has climbed this month to about $4.3 billion from $3.6 billion. Shares were up 2.1 percent, or $1.30, at $63.80 in New York Stock Exchange afternoon trading after rising as high as $64.40 earlier.
Fundamental problems
Knight Ridder still faces fundamental problems that have taken a toll on the entire industry: high newsprint costs, circulation declines, a depressed advertising environment and competition from new media that publish on the Internet.
“We’re pleased to see that management is seriously considering the interest of shareholders who just weren’t happy with the status quo,” said Morningstar Inc. analyst James Walden.
“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,” he said.
Walden believes that Knight Ridder could be worth $66 a share, which, with around 67.5 million shares outstanding, would equate to about $4.45 billion.
Until now, Knight Ridder has reacted to a sagging share price by cutting jobs and buying back its stock, among other strategic moves.
But with pressure from shareholders, analysts have said the publisher will either have to ratchet up that restructuring, sell pieces of the company or all of it, or enter into a leveraged buyout.
Among possible buyers, competitor Gannett Co. Inc. is the most frequently mentioned by industry analysts, followed by McClatchy Co. and Tribune Co. .
Gannett, Tribune and McClatchy have declined to comment on the Knight Ridder speculation.
Many other newspaper publishers face similar business problems but are protected from takeover pressures by large family or trust ownership, including Dow Jones & Co Inc. and the New York Times Co..
In the case of Knight Ridder, there is not a dual voting class structure or large family ownership. Chief Executive Tony Ridder owns about 2 percent of shares outstanding.
Knight Ridder, in its statement Monday, said it does not plan to comment on developments “unless and until its board of directors has approved a specific transaction.”