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Knight-Ridder Lacks Family Control To Thwart Activist Push

November 2005

Knight-Ridder Lacks Family Control To Thwart Activist Push

Wednesday November 2, 2005  

NEW YORK -(Dow Jones)- Bruce Sherman is no Carl Icahn.
But the Florida money manager has made headlines by urging Knight Ridder Inc. (KRI)(KRI) to pursue a sale of the company. And now some industry watchers are wondering if Sherman's firm, which owns significant stakes in most of the nation's publicly traded newspaper companies, might extend this into a longer news story by pushing other newspaper companies to sell themselves. However, in contrast to Knight Ridder (KRI), most publicly traded newspaper companies in the U.S. are family controlled, which would probably render such an effort fruitless, industry observers say.

"They sell if and when the families decide they want to sell," said Henry Berghoef, director of research at Chicago-based Harris Associates, which owns stakes in Knight Ridder (KRI), Gannett Co. (GCI) (GCI), Tribune Co. (TRB) (TRB) and Belo Corp. (BLC) ( BLC). "It periodically happens. But because they control the companies, it's their playpen."

In addition to its 19% stake in Knight Ridder (KRI), Private Capital Management is the largest investor in New York Times Co. (NYT) (NYT) next to the Sulzberger family, which controls the company. PCM also owns double-digit stakes in newspaper publishers Belo, Media General Inc. (MEG) (MEG), McClatchy Co. (MNI) (MNI) and Lee Enterprises Inc. (LEE) (LEE), each of which has family control. It has smaller stakes in Gannett and Tribune.

Knight Ridder (KRI) management, led by Chief Executive Tony Ridder, is expected to resist PCM's attempt to put the company on the block.

But, with only about 4% of the company's shares in family control, resistance may be futile.

The publisher is likely to face pressure to sell from institutional shareholders disappointed with the company's weak stock price and struggles to boost advertising revenue at its 32 daily newspapers including the Miami Herald and the Philadelphia Inquirer.

Knight Ridder (KRI) shares rose 1.9%, or $1.08, to $59.08 a share in heavy volume, extending a gain of nearly 9% Tuesday. "I'm sure at this point Tony Ridder is disappointed that his predecessors didn't push to have two classes of stock," said Ken Marlin, managing partner of the boutique investment bank Marlin & Associates.

Knight Ridder (KRI) spokesman Polk Laffoon didn't return requests for comment. PCM spokesman Chad Atkins said the Naples, Fla., investment firm would only comment through public filings with the Securities and Exchange Commission.

Newspaper stocks rallied Wednesday, boosted by the prospect of consolidation in the industry following PCM's demand that Knight Ridder (KRI) sell itself.

Some industry observers view PCM's Knight-Ridder (KRI) push as a "Hail Mary," a desperate attempt to make its big bet on the newspaper industry pay off.

The investment firm, which is owned by Legg Mason Inc. (LM) (LM), has added substantially to its newspaper holdings since 2000, at a time when many other investors have been steering clear of the sector amid a slump in readership and lackluster advertising demand.

Sherman has been known on occasion to turn activist shareholder, such as in software concern Oracle Corp. (ORCL)'s (ORCL) long-running battle to take over PeopleSoft.

He warned in a letter to Knight Ridder (KRI) dated Tuesday that, if the board opts not to pursue a sale, his investment firm would "strongly consider supporting more aggressive efforts," such as a shakeup of the board, a change in management or the acquisition of a majority of the company's voting shares.

If Knight Ridder (KRI) fails to be sold, newspaper stocks could fall amid concern that the investment firm would sell all of its positions in the group, said Doug Arthur, an analyst with Morgan Stanley. "It's a risky move because it has critical implications for the rest of his newspaper holdings," Arthur said.

With many challenges facing the industry, the list of potential suitors for Knight Ridder (KRI) might not be long, some analysts said.

But, even without a deal, it could help highlight how undervalued many of the newspaper stocks are, said Berghoef of Harris Associates. "When you listen to people talk about newspapers, you'd think they were on their deathbeds," he said. "They have challenges, but it's way too early to write their obituaries."

-By Janet Whitman, Dow Jones Newswires; 201-938-5248; janet.whitman@ dowjones.com

Copyright (c) 2005 Dow Jones & Company, Inc.



 

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