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Jun. 27--SAN JOSE -- The McClatchy Co.'s multibillion-dollar bet on the newspaper business starts today.
Shareholders of Knight Ridder Inc. approved the company's sale to Sacramento-based McClatchy on Monday, capping an eight-month drama that put the newspaper industry's struggles under a microscope. Addressing the company's last-ever shareholders meeting, a tearful Knight Ridder Chairman and Chief Executive Tony Ridder announced the deal received enough votes. It's expected to be completed at 1 p.m. today California time.
Once various spinoffs are completed, the takeover will add 20 daily newspapers to McClatchy's roster, including such publications as the Miami Herald and Kansas City Star. It will nearly triple annual revenue to more than $2.8 billion and make the publisher of The Bee the second largest U.S. newspaper chain. McClatchy will rank about 630th on Fortune's list of publicly held U.S. corporations.
"I feel great," Gary Pruitt, McClatchy's chairman and chief executive, said Monday. "I also feel the pressure of having to deliver on the deal."
Some investment analysts have said Pruitt is making a mistake spending about $4.1 billion, plus $2 billion in debt assumption, on a newspaper chain at a time of declining circulation and advertising revenue. Pruitt notes that newspapers are still quite profitable, and he believes they can make a successful transition to the online world.
Also Monday, McClatchy announced it has tied up one of its remaining loose ends: the sale of the Wilkes-Barre (Pa.) Times Leader, the last of the 12 Knight Ridder papers it has decided to spin off. The paper is being sold to a group led by former publisher Richard Connor.
McClatchy didn't disclose the sale price but said it will receive about $2.1 billion from the sale of the 12 papers -- in line with predictions it made to Wall Street.
That would imply, based on previous statements, that Wilkes-Barre sold for something short of $100 million.
McClatchy sold the 12 papers, including the San Jose Mercury News and Philadelphia Inquirer, because their markets are growing too slowly for McClatchy's liking.
Because McClatchy is paying for Knight Ridder partly in stock, the deal's value has dropped about $400 million since it was announced March 13. McClatchy's stock has fallen more than 20 percent since then, reflecting investor concern about newspapers in the Internet age. The stock closed down $1.15 Monday, to $40.45, on the New York Stock Exchange.
Knight Ridder "was a bargain before, and now it's even a better bargain," Ridder told reporters after the shareholder meeting.
Indeed, McClatchy was the lone serious bidder for Knight Ridder and bought it relatively cheaply -- another sign of troubled times in the business.
Its profits and stock price sagging, Knight Ridder put itself up for sale in November after its three largest shareholders -- institutional money managers led by Florida-based Private Capital Management -- demanded the company be sold.
After Monday's meeting, Ridder said Bruce Sherman, the head of Private Capital Management, told him the shareholder demands didn't reflect dissatisfaction with management. Rather, it was related to Knight Ridder's dependence on big-city papers beset with more competition than other papers. McClatchy operates in faster-growing markets and has generated fatter profit margins than Knight Ridder.
Ridder, who is joining McClatchy's board along with Knight Ridder director Kathleen Feldstein, said the alternative to selling was a "prolonged fight" with the money managers. Knight Ridder said the sale to McClatchy was approved by more than 80 percent of the shareholders, the minimum required under Knight Ridder bylaws.
Pruitt said the U.S. Justice Department has cleared McClatchy's purchase of Knight Ridder. But McClatchy missed its goal of completing the sale of all 12 at the same time it wrapped up the purchase of Knight Ridder.
The sale of four of the 12 papers -- in Aberdeen, S.D.; Duluth, Minn.; Grand Forks, N.D; and Fort Wayne, Ind. -- will close today. The sale of the two Philadelphia papers closes Thursday.
The Wilkes-Barre and Akron sales will close in late July, but it's unclear how long the Justice Department will take before approving the sales of the last four: San Jose, Contra Costa Times, the Monterey County Herald and St. Paul (Minn.) Pioneer Press.
All four are being sold to a group led by MediaNews Group Inc., which already owns seven Bay Area papers, and the Justice Department has asked for additional information because of antitrust concerns.
The last Knight Ridder shareholder meeting, at a downtown San Jose hotel a block from the company's headquarters, had a funereal tone. Shareholders were given a commemorative booklet about the company's history, which dates to 1892, and watched a 20-minute video that included remarks from former executives and Dave Barry, the Pulitzer Prize-winning humor columnist for the Miami Herald.
"I don't know that any other newspaper chain would have taken a chance" on a humor column, Barry said.
After the video, Ridder, his voice shaking, said, "We should take pride in the strength of that legacy."
Ridder will be paid a $9.4 million severance package.
The meeting was attended by longtime Knight Ridder executives and others connected to the company. Jean Batten, whose late husband James Batten was Tony Ridder's predecessor, called it a "sad day."
"I couldn't understand why a company could go down this way," she said.
"The motives were not the best."
But she said she believes company management did the best it could and "of all the possible outcomes (the sale to McClatchy) was the best.
"The whole industry is shaking; it's a difficult time," she said. "I hope they prevail."
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