Knight Ridder sale

The New York Times spinning the sale of Knight Ridder.

The sale may help assuage some investors who are nervous about the values of newspaper companies, however, because Knight Ridder commanded a premium of about 25 percent for its shares from the time it put itself up for sale in November under pressure from shareholders who were unhappy with performance of its stock.

It reminds me of the $60 billion Viacom paid for CBS radio, properties that Viacom devalued by $30 billion two years later. Then there was the Time-Warner-AOL sale and the $80 billion writedown within two years.

Unmentioned, of course, in the NYTime story was the fact that Knight Ridder was $2 billion in debt. They also failed to mention that McClatchy papers had to finance the transaction with $3.75 billion in bank debt. Most telling of all is the fact that the fear was rampant that no one would want Knight Ridder. MSNBC on the need for a "strong bid."

If big newspaper owners such as Gannett Co. don’t step up and make what investors believe to be a strong bid, pessimists might take it as a sign of waning confidence in the future prospects of an industry that many already believe to be in decline. On the other hand, paying a rich price could also lead investors to punish the acquiring company. “It’s a Catch-22,” says Merrill Lynch newspaper analyst Lauren Rich Fine.

In other words, the bailout was essential. McClatchy couldnt' afford it without bank loans, and they plan to sell off 12 papers immediately to pay for the Knight-Ridder debt. Wall Street wasn't as optimistic as the New York Times. And even the Times eventually admitted the sale wasn't much of an auction, with only one newspaper bidding.

The bottom line, though, is that the 2nd largest newspaper chain in the U.S. just went belly up.