updated 3/10/2006 5:39:54 PM ET 2006-03-10T22:39:54

A group of private equity investors has submitted a bid for Knight Ridder Inc., the storied newspaper publishing company that was forced to put itself up for sale last year by its largest shareholders.

The consortium of buyout funds includes Texas Pacific Group, Bain Capital, Thomas H. Lee Partners, Hellman & Friedman and Oak Hill Partners, according to person with knowledge of the talks who asked not to be identified by name because the auction process is confidential. That person declined to give the value of the bid, which would be made in cash.

The New York Times and The Wall Street Journal both reported Friday that The McClatchy Co., a Sacramento, Calif.-based newspaper publisher, had put in a bid that was worth “more than” $65 per share in cash and stock.

With about 67 million shares outstanding, that would make the bid worth more than $4.4 billion, though the exact value was unclear, and both Knight Ridder and McClatchy declined to comment. The company has been buying back its own stock.

Knight Ridder’s shares rallied $2.34 or 3.7 percent, to close at $65 in heavy trading Friday on the New York Stock Exchange, while McClatchy’s shares rose $1.31, or 2.5 percent, to finish at $53.24.

Industry leader Gannett Co., which is also believed to be interested in Knight Ridder, saw its shares rise $1.11, or 1.8 percent, to close at $61.70 on the NYSE. Gannett has also declined comment.

Still unclear is where the privately held company MediaNews Group Inc. stands. It owns The Denver Post and dozens of other papers, and had been interested in the papers. The deadline for submitting bids passed late Thursday, and MediaNews didn’t return a call seeking comment.

It wasn’t clear whether the bid from the private equity consortium was larger or smaller than McClatchy’s, or what the consortium’s plans were for the Knight Ridder newspapers, should the bid succeed.

While McClatchy is a smaller company than Knight Ridder, it is very well regarded on Wall Street and analysts believe it would have little trouble raising any funds needed for the transaction. It is also known for high quality journalism and strong circulation trends at its newspapers, which include The Sacramento Bee.

At stake is the ownership of 32 newspapers nationwide, including the San Jose Mercury News, The Philadelphia Inquirer and The Miami Herald. Knight Ridder was forced to put itself up for sale last November by its largest shareholders, who were frustrated with the company’s lagging share price.

Knight Ridder was expected to consider the bids over the weekend.

If Knight Ridder decides the bids are too low or otherwise unattractive, analysts note that the company could pursue other options for increasing its share value, such as borrowing money to buy back a significant number of its shares.

With Knight Ridder’s stock trading in the low-$60 range recently, investors are not expecting a ferocious bidding war for the company. Merrill Lynch analyst Lauren Rich Fine wrote in a note to investors that if bids come in at the expected range of mid-$60s per share, it would be “unlikely to excite investors.”

At that price, the price would reflect about 10 times the company’s cash earnings per share last year, below the historical average takeover price in the industry of 12 to 13 times trailing earnings, Fine wrote.

Many investors will be looking to what price, if any, Knight Ridder may choose to sell itself at to gauge investors’ outlook on the newspaper industry, which has been largely negative recently over concerns about declining circulation trends and the migration of readers and advertisers to the Internet.

However, some investors say Knight Ridder’s case has several special circumstances that may not apply to every case, including several papers in struggling markets such as Philadelphia, which may help account for a multiple that could be below historical averages.

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