McClatchy Co. is selling The Philadelphia Inquirer and the Philadelphia Daily News for $562 million to a group of local investors who hope to reverse circulation declines by emphasizing local news and doing more with the Internet.
The two Philadelphia papers are being bought by a group led by advertising executive Brian Tierney and Bruce Toll, co-founder of luxury home builder Toll Brothers Inc. The papers are among 12 currently owned by Knight Ridder that McClatchy plans to sell.
McClatchy and the investor group said in a statement that they intend to complete the deal around the same time that McClatchy closes its deal for Knight Ridder, which is expected this summer. McClatchy will receive $515 million in cash, and the investment group, Philadelphia Media Holdings, will assume $47 million in pension liabilities.
Once McClatchy closes its purchase of Knight Ridder’s remaining 20 papers, it will become the second-largest newspaper company in the country following Gannett Co.
The deal returns the Philadelphia papers to private ownership for the first time since 1969, when Walter H. Annenberg sold the papers to Knight Newspapers Inc. after being named U.S. ambassador to Britain.
“The next great era of Philadelphia journalism begins today with this announcement,” Tierney said. “We intend to be long-term owners committed to serving this region with the vigorous, high-quality journalism we all expect of The Philadelphia Inquirer, Daily News and philly.com, and we intend to preserve both papers and their unique and valuable contributions.”
Tierney, speaking at a news conference at the newspapers’ building, said the new ownership group does not plan to cut jobs.
“We didn’t buy it to cut it,” he said. “We want to grow these publications, not try to manage the decline.”
Tierney and Toll said that they want to improve the Inquirer’s local news coverage and Internet presence. The buyers also might start up ad-rich sports and business weeklies, as well as expand downtown coverage to attract real estate advertising.
The sale of the two papers is part of McClatchy’s plan to divest 12 of 32 newspapers it bought from Knight Ridder for about $4.5 billion plus the assumption of $2 billion of debt. Most of the publications being sold were targeted because they don’t fit McClatchy’s long-standing criteria of buying newspapers in growing markets.
In the six-month period ending in March, the Inquirer’s weekday circulation was nearly 350,500, according to the Audit Bureau of Circulations, down 5.1 percent from the like period a year ago.
The Philadelphia papers’ combined circulation last September was down 30 percent from its peak in the 1980s, following a national trend.
The two papers have struggled to keep up with new competition in recent years.
Like many big-city papers, the Inquirer has suffered declining circulation because fewer people live in the city and because of fierce competition, said newspaper analyst John Morton of Morton Research Inc. In the suburbs, he said, it’s tough for the papers to compete with local dailies.
“Metropolitan papers cannot ever cover the suburbs in as much detail as the local suburban daily can. It’s just impossible,” Morton said. “No newspaper has a staff large enough to do that.”
The Internet also has lured away newspaper readers everywhere, Morton said.
Philadelphia Daily News columnist Stu Bykofsky said he was pleased the paper would no longer be “tied to the dictates of Wall Street.”
“That is enormously important because Wall Street has been the poison that has destroyed American journalism by its constant demands to return, say, 25 percent annually on investment, which is a figure that only the Mafia used to get,” Bykofsky said.
Other bidders for the two Philadelphia papers included Mortimer B. Zuckerman, owner of the New York Daily News; Black Press Group Ltd., a Victoria, Canada-based newspaper publisher; and Yucaipa Cos., an investment firm that is working with a newspaper union.
William Dean Singleton of MediaNews Group Inc. in Denver also was interested.
Toll, who is making a personal investment not tied to his company, said he was surprised, happy and excited to be a part of the winning bid. He said he grew up reading the papers, but his interest is mainly as an investor: “This is business. There’s some emotion, of course, but it’s still business.”
Tierney has been active in local Republican circles and co-chaired the GOP candidate’s campaign in the last mayoral election.
Both he and Toll have said they won’t influence editorial coverage. When Tierney repeated that at the news conference, he was met with applause from the papers’ reporters.
Morton said the new owners have to be careful about not letting their ties even subtly influence decisions.
“Back in the old days when a lot of papers were locally owned, it often meant the newspaper had a lot of sacred cows because its owners were part of the local establishment,” he said. “A lot of it went away with chain ownership. The concern is, it might come back.”
The Inquirer, the nation’s 17th largest daily newspaper and Pennsylvania’s largest, has won 17 Pulitzer Prizes while the Daily News has won two.
The Inquirer was founded in 1829 as The Pennsylvania Inquirer by John Norvell and John R. Walker. The Daily News began publishing in 1925 and now bills itself as “The People Paper.”
The Inquirer has passed through many hands in its long life. It has been owned by Jesper Harding, a newspaper editor and publisher of Bibles; his son, William W. Harding, who changed the paper’s name to The Philadelphia Inquirer; Moses Annenberg, the Hearst Corp. executive and publishing baron; his son, Walter, who bought the Daily News in 1957; and later Knight Newspapers Inc.
Henry J. Holcomb, an Inquirer business writer who is president of the Newspaper Guild of Greater Philadelphia, voiced guarded optimism about the sale. He said that the union would hold the new owners to their earlier pledge to honor the guild contract, which expires in August.
“They have said there would be no layoffs, and they have said in informal conversations that they did not count on major concessions from the unions to help make this deal. And we will do our best to hold them to that,” Holcomb said. “There have been draconian cuts in recent years, so we have already been cut to the bone.”
Morton said the new owners should expect to pay higher costs for materials such as newsprint, since they won’t have the buying power of a big newspaper chain.
But at least the two newspapers won’t have to cater to Wall Street investors as publicly traded Knight Ridder did.
“This is probably one of the positive things about it,” Morton said. “They won’t have Wall Street on their backs all the time.”
Last month, McClatchy sealed a deal to sell four other newspapers to MediaNews Group Inc., a privately held company based in Denver. With the Philadelphia papers now sold, that leaves six other newspapers remaining for McClatchy to divest: 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 News-Sentinel in Fort Wayne, Ind.; and the Times Leader in Wilkes-Barre.