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Dec. 28--For every seller there's a buyer, and the firm purchasing The McClatchy Co.'s largest and most troubled property says it believes the newspaper industry is about to rebound.
"We're at a low, or near a cyclical low," said OhSang Kwon, a partner with New York-based private equity firm Avista Capital Partners.
"This is a good time to be buying papers," Kwon said in an interview Wednesday. "I think we got a good deal."
The private equity firm agreed Tuesday to buy the Star Tribune of Minneapolis from McClatchy for $530 million. Because it's taking a loss, Sacramento-based McClatchy, which owns The Bee, will realize $160 million in tax benefits, putting the total value of the deal at $690 million.
But that's still a little more than half what McClatchy paid for the paper in 1998, and despite Kwon's enthusiasm, some investment analysts said they don't expect newspapers' fortunes to bounce back any time soon.
"The substantial loss on the sale is a vivid reminder of the industry's declining fortunes over the last several years," Peter Appert of Goldman Sachs Group wrote in a note to investors Wednesday. He added that the price "is not a bullish indicator."
McClatchy stock closed at $43.06, down a penny, on the New York Stock Exchange on Wednesday, the first day of trading since the deal was announced.
Some experts saw McClatchy's decision as a troubling sign, given that the Sacramento company had shown tremendous faith in the industry by purchasing newspaper publisher Knight Ridder Inc. last summer for $4 billion, plus $2 billion in debt assumption.
McClatchy Chairman and Chief Executive Gary Pruitt said the company remains committed to the newspaper business. He said the sale also will give McClatchy greater flexibility to invest more deeply in its Internet operations.
Appert and other analysts did give McClatchy credit for selling a paper that was losing revenue.
Although losing Minneapolis will take a chunk out of McClatchy's profits in 2007, "we view the decision to sell the Star Tribune as strategically sound," UBS Securities' Brian Shipman wrote in a note to clients.
Practically every daily newspaper is losing subscribers and advertisers to the Internet and other sources. The Star Tribune, while still profitable, was losing ground at a faster clip than most, largely because big-city papers are more susceptible to competition from the Web.
The Star Tribune is more dependent than other McClatchy papers on classified advertising, a segment of the business that's under heavy attack from the Web.
In explaining the sale, Pruitt said the Minneapolis paper's ad sales were down 6.1 percent the first 11 months of the year. McClatchy's overall ad sales were actually up 0.1 percent.
Avista, though, believes the Star Tribune numbers can be turned around.
"We think newspapers are going to be around for a long time," Kwon said. "I don't buy into the theory that the newspaper's dead, and it's all going to the Internet."
He added that the Star Tribune has a strong Internet operation of its own, which moderates the risk of buying the paper.
The Star Tribune is Avista's first daily newspaper.
Pruitt said McClatchy will use the proceeds to accelerate repayment of the $3 billion it borrowed last summer to buy Knight Ridder.
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Copyright (c) 2006, The Sacramento Bee, Calif.
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