business

Just weeks ago, many analysts dismissed the McClatchy Co. as too small to buy Knight Ridder Inc., the nation's second-largest newspaper chain. But a consensus was building late Thursday that McClatchy could emerge as the winning bidder.

Sacramento-based McClatchy reportedly offered a combination of cash and stock greater than $65 per share -- or more than $4.37 billion -- before the Thursday deadline for bids, according to the Wall Street Journal. The Journal said that Denver-based MediaNews Group Inc. was fading from scene, and a private equity group that included Thomas H. Lee Partners and Texas Pacific Group had offered a lower price than McClatchy.

Knight Ridder, which owns the St. Paul Pioneer Press, put itself up for sale in November at the urging of three large shareholders frustrated by poor performance of its stock. Company spokesman Polk Laffoon would not comment on the bids or their size, and McClatchy Treasurer Elaine Lintecum did not return calls late Thursday. McClatchy owns the Star Tribune.

Knight Ridder's board of directors plans to meet this weekend.

The meeting is to consider the bids, according to sources familiar with the transaction. A deal could be announced as early as Sunday, these sources said.

"I think McClatchy wants this more than anyone else," said Larry Grimes, president of W.B. Grimes, a media-focused investment bank based in Gaithersburg, Md. "They look at this as an opportunity to be a player in more major markets."

Analysts cautioned that a deal might not occur if Knight Ridder's board decides it doesn't like any of the bids. In such a case, Knight Ridder could buy back its shares using borrowed money. And if the offers are close enough, Knight Ridder could ask for another round of bids, analysts said.

For McClatchy, an acquisition of this size would place it in the upper tier of newspaper companies nationwide. McClatchy, which has 12 daily newspapers, then would own the San Jose Mercury News, Miami Herald, Philadelphia Inquirer and Duluth News Tribune, among others. Its annual revenue would nearly triple.

Yet McClatchy would have to borrow heavily to make the transaction work, and that could force the company to slash costs and possibly sell papers in some of Knight Ridder's slower-growing markets.

"Every dollar that a buyer pays to finance the debt on this deal is a dollar they can't spend on news coverage," said Henry Holcomb, president of the Philadelphia local of the Newspaper Guild.

Industry analysts remain divided on whether McClatchy would be forced to sell the Pioneer Press because of antitrust concerns. Some believe there is not enough overlap between the two markets to force McClatchy to sell. If McClatchy were to keep St. Paul, it likely would consolidate certain operations, such as distribution and circulation, with the Star Tribune, analysts said.

"If [federal regulators] perceive St. Paul and Minneapolis as contiguous markets, and not the same market, then they may let [McClatchy] keep the Pioneer Press," Grimes said.

McClatchy's purchase of Cowles Media in 1998 turned the small-cap California company into a mid-cap media player, said one analyst, but that was nearly ten years ago.

"Since then, the bar has been raised from what makes you a mid-cap company, and I suspect that McClatchy feels some need to continue to get larger -- and certainly this does it in one fell swoop," said John Morton, president of Morton Research Inc., a media consulting firm. "It will make them a very large company."

However, analysts said a deal likely would have a negative impact on McClatchy's stock, which has already fallen in anticipation of a heavily leveraged deal. McClatchy's stock fell 47 cents to $51.93 a share Thursday -- a 52-week low. Knight Ridder's shares rose 20 cents to $62.66 a share.

Chris Serres • cserres@startribune.com Matt McKinney • mckinney@startribune.com