Knight Ridder's Largest Shareholder Wants Out

You can manage decline only so far before your company crumbles. Case in point: Knight-Ridder, Inc, the second largest newspaper chain in the U.S.

Is Knight Ridder crumbling? Look how the crumbs are starting to fall.

The crumb was today’s announcement by Private Capital Management, Knight Ridder’s the largest institutional shareholder, urging the newspaper company’s board of directors to put the company up for sale. In other words, Private Capital Management, which owns nearly 19 percent of Knight Ridder, wants out.

Private Capital Management said a sale should be pursued, “in light of limited revenue growth across the newspaper industry and the difficulties the company has faced in realizing the fair value” for its shareholders.

Like most newspaper corporations, Knight Ridder has been cutting both staff and expenses, squeezing higher profit margins out of its newspapers even as their circulations declined. Something had to give, and what gave today was the confidence of Knight Ridder’s largest shareholder.

Ten years ago, in an essay in American Journalism Review, Philip Meyer, who holds the Knight Chair in Journalism at the University of North Carolina at Chapel Hill and had spent 23 years working for Knight Ridder, most recently as the company’s director of news and circulation research, warned this would happen if the company continued squeezing its newspapers:

    “Which scenario are we moving toward — squeezing the goose or nurturing it? While the signals are mixed, most of the decisions making business page headlines point to the squeeze scenario. Layoffs, closing bureaus, shrinking news holes are the order of the day. On the other hand, the public journalism movement represents an effort to build civic spirit in a way that will emotionally bind citizens to the newspaper. Whether very many newspapers will spend the money to wholeheartedly practice genuine public journalism remains to be seen. The short term economic pressures are against them. The first scenario produces visible and immediate rewards while the costs are hidden and distant. The second yields immediate costs and distant benefits.

    “The dilemma cuts across all forms of newspaper ownership, but publicly held companies bear a special burden because of Wall Street’s habit of basing value on short term return. Take the case of a long term-oriented, nurturing company like Knight-Ridder. With total average daily circulation of 3.6 million, its newspapers would bring a total of $6.5 billion if sold separately at an average value of $1,800 per paying reader. … With 52.9 million shares outstanding at the 1994-95 high price of $61 per share, the entire company, including its non-newspaper properties, is valued by its investors at only $3.2 billion or around half the break-up value.”

Yesterday, Deutsche Bank securities downgraded Knight Ridder from “hold” to “sell.”

Knight Ridder Chairman Tony Ridder has been expressing confidence in his company. I think this week that too began to crumble.

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