What’s going on at McClatchy?
The Journal might be right. But I doubt it. Here’s why:
MNI has $2.1 billion in debt. Its shares nowadays are trading at about $3.30 apiece (only 18 cents above today's new 52-week low). To sell enough stock to pay all that debt, the company would have to issue 636.4 million new shares, or 7.7 times more stock than the 82.4 million shares outstanding today.
This would result in massive dilution not only for common shareholders like me, but seemingly also for the members of the McClatchy family, who own the super-voting stock that controls the company. Although a common shareholder might have no choice in the matter, this hardly seems like an appealing outcome for the family controlling the company, either.
But wait. It gets worse.
If MNI announced a plan to issue more shares, investors would pummel the stock from its already low price to even lower lows. If the price of the common stock fell by, say, half, then the company would have to issue nearly 1.3 billion new shares, or 15.4 times more than today’s float. This would double the dilution, making the deal even more unappealing to both classes of shareholders.
And then there’s the minor matter of who would buy these new shares. Given the awesomely bearish view of the newspaper business among investors, where would MNI find someone to buy $2.1 billion worth of new stock?
UPDATE: 9.10.08: In a press release issued at mid-day today, Gary said his departure from the trusts "should not be taken as a precursor to any move by the company or McClatchy family, including taking the company private or altering its capital structure."
Now, it’s entirely possible this is going to come down exactly the way the Journal says it will – or that nothing will happen at all.
But I still think, as originally reported here, that Gary’s exit from the trust signals either (a) the company is headed down a path to be taken private or (b) Gary is in the process of being ejected as the chief executive, a position he has held since 1996 (sitting simultaneously as one of the four directors of the family trusts for the last five years).
The above scenarios, BTW, are not mutually exclusive.