Monday, January 01, 2007

Unintended consequences

Although investors forced management to sell Knight Ridder in the interests of improving shareholder value, the transaction has resulted in precisely the opposite outcome.

In the six months since KRI was sold, the shares of the acquiring company, McClatchy Newspapers, have deteriorated so badly that the KRI shares swapped for MNI stock have lost nearly 7.6% of their value.

When Knight Ridder agreed to be sold in March, 2006, McClatchy paid $67.25 a share for a stock that closed the previous day at $63.10. The deal was below KRI’s trading high of $71.02 in the previous 12 months and the 6.6% vigorish over prior day’s price wasn’t even a third of the 20% premium common in such a deal.

KRI agreed to accept $40 of the per-share payment in cash and the rest in MNI stock. Because McClatchy’s shares have fallen since June, the holdings of a KRI shareholder who kept his MNI stock through the end of 2006 were worth $5.09 per share less than on the day before KRI was sold.

The KRI deal resulted in the dislocation of the lives of hundreds of employees and the liquidation of one of the nation’s most esteemed journalistic institutions. But the collateral damage isn’t over yet.

In a shocking aftershock, MNI at yearend dumped its largest paper, the Minneapolis Star-Tribune, for less than half the $1.2 billion for which it was purchased in 1998.

Faced with declining revenues and high operating costs, the new owners of the Strib may be planning some measures of their own to improve shareholder value.


Anonymous Anonymous said...

Living in New York, I don't read the Star-Trib, but if bloggers, namely the crew at Powerline and Ed Morrissey at Captain's Quarters are accurate, then the Strib's coverage is biased, unfair, and even derelict. If that's the case, I certainly wouldn't buy the paper. I cancelled my Newsday subscription years ago for many of the same reasons, and never looked back. BTW, for what it's worth, I grew up in a newspaper household--my father was an editor with Hearst for 40-odd years and I spent 20 years in the trade. As a kid, I devoured 4 or 5 newspapers day...and the industry is loosing me as a customer.

8:33 PM  

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