The McClatchy Co. surprised observers with the $530 million sale to New York investment firm Avista Capital Partners.
The McClatchy Co. capped a year of dramatic changes in the newspaper industry Tuesday by announcing the surprise sale of the Star Tribune, its largest newspaper, to a private investment group.
The $530 million sale will place the future of Minnesota's dominant newspaper in the hands of Avista Capital Partners, a New York-based partnership of former investment bankers. It also continues a trend that accelerated this year in which large newspaper companies, such as McClatchy, Knight Ridder and Tribune, either winnowed their holdings or put themselves up for sale. Private owners have emerged to bid for many of the big-city papers that have come into play as a result.
McClatchy has played a major role in that change, agreeing to buy all of Knight Ridder Inc. last spring. Sacramento, Calif.-based McClatchy then sold a number of the Knight Ridder papers it considered to be less desirable, including the St. Paul Pioneer Press, which is now run by privately held MediaNews Group Inc. of Denver.
Those sales concluded by the fall, however, and the Star Tribune had not been viewed within the industry as a candidate for sale.
McClatchy paid $1.2 billion for the newspaper in 1998. Although its circulation and advertising results in the past several years had run into the same headwinds that other large dailies have encountered, the Star Tribune remains solidly profitable.
"This likely comes as a surprise to each of you," Publisher Keith Moyer acknowledged during a late-afternoon staff meeting.
"These are indeed challenging times for newspapers, especially larger ones, such as ours," Moyer said.
Speaking to the Star Tribune staff Tuesday, an Avista executive said the firm was drawn to the Star Tribune by its dominant market share in the Twin Cities. The Star Tribune, which has been in operation under different names and owners for nearly 140 years, had 40 percent of the Twin Cities advertising market in the third quarter.
"I'm here today because my partners at Avista and I believe unequivocally that the Star Tribune is one of the great newspapers in the country and that the Twin Cities is one of the great markets," said Chris Harte, a member of Avista's executive advisory board and a former Knight Ridder publisher, who will act as chairman of the board of directors at the Star Tribune. Moyer will become a member of the board, as will Avista partners James Finkelstein and OhSang Kwon.
Moyer will continue as the Star Tribune's publisher, and Avista said the newspaper's management team will remain in place.
Star Tribune Editor Anders Gyllenhaal recently took a new post as executive editor at the McClatchy-owned Miami Herald. Gyllenhaal said Tuesday he was asked to take the Miami job before he learned that a Star Tribune sale was pending.
Paper has been lagging performer
McClatchy, in explaining its decision, said the Star Tribune had been underperforming in recent years.
"The Star Tribune did very well for a few years, but recently it has lagged in performance," McClatchy CEO Gary Pruitt said. "Large metro papers have underperformed smaller ones because they've been more dependent on classified ads, which have been most affected by the Internet. The Star Tribune suffered from that."
While the sale price is far less than McClatchy paid in 1998, the company will also realize $160 million in tax benefits as a result, making the total benefit to McClatchy closer to $700 million.
The sale, which is expected to close in the first quarter of 2007, will mark the entry of Avista into the newspaper business. The private equity firm, which has holdings in media, health care and energy businesses, was among the firms that had been interested in the Philadelphia Inquirer and the Philadelphia Daily News before McClatchy sold the former Knight Ridder papers to another group earlier this year.
The Avista partners did not disclose any specific plans for the Star Tribune, saying those discussions have not yet been held. Speaking to a handful of reporters after the announcement, Harte said the sale came about quickly.
"We just saw an opportunity here to take a historically strong asset in an industry that's clearly out of favor right now," Harte said. "The long-term goal is to provide great content."
Faith in the printed product
Some observers of the industry believe that newspaper readers will continue to migrate to the Internet, leaving fewer readers to support the printed product that remains the main source of revenue for publishers, although most are aggressively beefing up their Web content and advertising.
However, Harte indicated that his group believes the printed product will remain in demand and profitable for many years.
"We believe strongly that there will be a Star Tribune printed and delivered to hundreds of thousands of customers every morning for decades to come, probably for generations, maybe for centuries."
The Star Tribune has a paid circulation of 361,172 daily copies and 596,333 on Sunday.
Avista plans to continue some of its relationship with McClatchy for at least a year as it negotiates for wire services and other content used by the newspaper.
While layoffs and other staff reductions have occurred among a number of the papers that have been bought by private groups this year, Avista officials said they are not eyeing major staff reductions or a quick sale.
"You don't buy a paper that's involved in intellectual property and strip it," said Avista partner James Finkelstein. "There'd be no point. All you're selling, all you have, is your intellectual property. You want people to read."
McClatchy plans to live up to its commitments through the Star Tribune Foundation, the charitable arm of the newspaper, Pruitt said. The foundation gives away $3 million annually to local charities and national journalism organizations and will continue to do so through 2007 under an agreement that was struck when McClatchy purchased the paper.
The deal ends after 2007, Pruitt said, but McClatchy has already made some commitments to local charities into 2008 and will live up to those as well, he said.
Media observers react cautiously
Twin Cities media watchers were cautious in their comments about the sale, with most adding that they knew little about the new owners.
"From a reader's point of view, this is one of the most literate centers in North America, so I hope this [sale] means we will continue to develop great journalism in the Twin Cities," said Vance Opperman, co-owner of MSP Communications, which publishes Mpls/St. Paul magazine and Law and Politics. He said he couldn't comment about whether he knew the Star Tribune was up for sale or whether he was offered the opportunity to bid for it.
Minneapolis Mayor R.T. Rybak said his "first reaction is that I'm extremely concerned to see a major local institution that's been a key player in our civic life suddenly owned by a company no one's heard of. However, many people felt that way when McClatchy bought the paper, and they turned out to be a good corporate citizen, so I'll wait to learn more."
Rybak said that when he worked as a Star Tribune reporter, the newspaper "understood its impact on the community went beyond the bottom line," and he cited the newspaper's leadership in civic efforts. "My hope is the new owners would understand that this is not just any business in the city."
Too early to tell what might happen
Jane Kirtley, professor of media ethics and law at the University of Minnesota, said it's too soon to draw conclusions about the sale.
"I think you've got a mixed bag, and [it's] hard to predict at this point what is likely to transpire," she said.
Jay Cowles, who was chairman of the board when Cowles Media Co. sold the Star Tribune to McClatchy in 1998, said the sale was "apparently not a negative judgment on the prospects of the Star Tribune or the capability of its management and staff, but rather a financial restructuring of McClatchy's balance sheet."
The Minnesota Newspaper Guild has been told that the new owners will honor the Star Tribune's labor contracts, said Darren Carroll, executive officer of the Guild.
Among the Guild membership, "there's certainly surprise, concern and some anxiety about what this means for the future of the paper," Carroll said.
Staff writers Pam Louwagie and Bob von Sternberg contributed to this report. Matt McKinney • 612-673-7329 • firstname.lastname@example.org