updated 4/26/2006 8:28:08 PM ET 2006-04-27T00:28:08

MediaNews Group Inc., publisher of The Denver Post and other newspapers, is acquiring four newspapers from The McClatchy Co. for $1 billion in cash with backing from Hearst Corp., another publishing company.

The four papers — the San Jose Mercury News, the Contra Costa Times, the Monterey County Herald and the St. Paul Pioneer Press — are currently owned by Knight Ridder Inc., which McClatchy is in the process of buying.

The deal announced late Wednesday will strengthen MediaNews’s presence in northern California, where it already owns several papers in the San Francisco Bay Area. MediaNews is a privately held company based in Denver and run by William Dean Singleton.

The four papers are among the 12 Knight Ridder properties that McClatchy has said it intends to sell since they don’t meet McClatchy’s acquisition criteria, which include being located in rapidly growing markets.

MediaNews’ interest in the newspapers had been widely known. The three northern California papers would complement the company’s existing holdings, which include The Oakland Tribune and the Marin Independent Journal. MediaNews owns a number of newspapers in geographic clusters, which helps reduce production and other costs and also allows for group advertising sales.

“These were the newspapers that excited us the most about Knight Ridder,” Singleton said in a statement, calling the deal “a wonderful opportunity at a fair price.”

McClatchy would have faced antitrust difficulties owning the St. Paul, Minn. paper since it already owns the Star Tribune in the neighboring city of Minneapolis.

McClatchy said Wednesday that the Department of Justice told the company it would only seek additional information regarding the Minneapolis/St. Paul area, indicating that regulators didn’t see other antitrust concerns with the Knight Ridder takeover.

As he prepared to leave the Mercury News for a meeting at the Contra Costa Times, Singleton said no layoffs are currently planned at the Bay area papers. He had earlier told the Mercury News staff that MediaNews generally leaves cost-cutting decisions to each paper’s management teams.

Asked how he thought the deal would affect Bay Area journalism, Singleton said, “I hope it will make it better.”

Knight Ridder CEO Tony Ridder said he will closely monitor how the deal affects the Mercury News — his hometown paper. “I think Dean will do a good job,” Ridder said outside the Mercury News. “I have his cell phone and e-mail addresses and if I see anything I don’t like I plan to let him know.”

After weeks of anxiety, Mercury News employees seemed to be feeling better after meeting with Singleton, said Griff Palmer, a database editor for the paper. “He was not presenting himself as a slash and burn farmer,” Palmer said. “In many respects, he just sounded like a hard-nosed businessman.”

The agreement calls for MediaNews to acquire the San Jose Mercury News and the Contra Costa Times, which will then be folded into the California Newspaper Partnership, an entity in which it has a 54 percent stake.

The other two stakeholders in the partnership, industry leader Gannett Co. and the privately held Stephens Media Group, have agreed to contribute their share of paying for the two papers, according to a joint statement from McClatchy and MediaNews.

Separately, Hearst, publisher of the San Francisco Chronicle, will buy the Monterey County Herald in California and the St. Paul Pioneer Press and then transfer them to MediaNews in exchange for a stake in all newspapers MediaNews owns outside of the Bay Area.

Once the deal closes, MediaNews would become the fourth-largest newspaper company in the country in terms of circulation, with about 2.7 million daily circulation and 53 daily newspapers.

An official for the labor union representing about 600 workers at the San Jose and Monterey papers remained hopeful government regulators will block MediaNews’ takeover to prevent too many newspapers from falling under the same ownership.

California Attorney General Bill Lockyer already has signaled he intends to examine the deal to make sure readers and advertisers aren’t hurt by the planned takeover.

The deal had little appreciable effect on McClatchy shares, which were unchanged in late trading, after falling 7 cents to $44.71 Wednesday on the New York Stock Exchange.

The news comes a day after Singleton and Gary Pruitt, the CEO of McClatchy, avoided questions about the status of the negotiations during a joint appearance at an annual conference of newspaper editors in Seattle.

Knight Ridder was forced to put itself up for sale last fall following a revolt of its three largest shareholders, who were frustrated with the company’s lagging stock price. Unlike several other newspaper publishers including McClatchy, The New York Times Co. and The Washington Post Co., Knight Ridder was not controlled by a family through a separate class of stock.

McClatchy announced a deal to buy Knight Ridder in mid-March for $4.5 billion in cash and stock, plus the assumption of $2 billion in debt.

McClatchy, which normally carries a relatively light debt load, is taking on $3.75 billion in debt to finance the cash portion of the deal as well as the $2 billion in debt it is assuming from Knight Ridder.

The Sacramento, Calif.-based McClatchy has said it wants to reach deals as soon as possible for the newspapers it doesn’t plan to keep and plans to use the proceeds to reduce debt.

McClatchy intends to keep 20 other newspapers owned by Knight Ridder, which together with the 12 it already owns will make the company the No. 2 newspaper company in the country behind Gannett.

Once the deal is complete, McClatchy will have eight additional Knight Ridder newspapers to sell: the American News in Aberdeen, S.D.; the Akron Beacon Journal in Ohio; the Duluth News Tribune in Minnesota; the Grand Forks Herald in North Dakota; the Philadelphia Daily News and The Philadelphia Inquirer; The News-Sentinel in Ft. Wayne, Ind. and The Times Leader in Wilkes-Barre, Pa.

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