McClatchy buying Knight Ridder

Those concerns were evident in stock market trading Monday. McClatchy shares fell $1.51, or 2.9 percent, to $51.55 in heavy trading on the New York Stock Exchange after earlier declining to as low as $49.21 a share. Knight Ridder’s shares fell $1.08, or 1.7 percent, to $63.92.

Based on Monday’s closing price, the deal values San Jose, Calif.-based Knight Ridder at $66.38 per share, including $40 per share in cash and 0.5118 of a share of McClatchy’s Class A stock. Monday’s decline in McClatchy shares sliced about $60 million from the total value of deal.

McClatchy said in a regulatory filing Monday that it is entitled to a fee of $171.9 million from Knight Ridder if the takeover is called off under certain circumstances.

Still, Merrill Lynch analyst Lauren Rich Fine said McClatchy has a “lot of credibility” among investors in handling its previous acquisitions, which included the 1997 purchase of the Minneapolis Star Tribune, even if it paid full price to get them. “They have always have done better on the numbers than they said they would,” Fine said.

Knight Ridder put itself on the block last fall when the company’s largest shareholders forced it to explore a sale, having become frustrated with its stock performance. Knight Ridder’s chairman and CEO Tony Ridder said in a statement Monday the “uncertainty is not over” for employees at the 12 papers McClatchy intends to divest, and “I regret that very much.”

Pruitt declined to say where the expressions of interest were coming from, but he said no deals were in place. Pruitt also acknowledged that the company could face significant tax bills in selling the papers, which have been held by Knight Ridder for a long time, making their relative cost basis low.

Robert Willens, a tax and accounting analyst at Lehman Bros., said there was little that could be done to avoid paying those tax bills, which he said could amount to between 25 and 28 percent of the purchase price.

In addition to the 20 newspapers being added from Knight Ridder to the 12 McClatchy already had, the deal also gives McClatchy a bigger foothold on the Internet as it takes on Knight Ridder’s one-third stake in CareerBuilder, a growing online job postings business that is co-owned with Gannett and Tribune, as well as the Real Cities Network, a grouping of 110 local Internet sites, and a 49 percent interest in The Seattle Times.

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