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reprint or license thisCut labor, paper costs to lift profit, KR tells bidders
By Pete Carey
Mercury News
Knight Ridder is telling prospective buyers that its profits can be sharply increased by cutting jobs and benefits and reducing the size of some of its 32 newspapers.
The San Jose-based company, the nation's second-largest newspaper publisher and owner of the Mercury News, has put itself up for sale in response to pressure from three major shareholders who have been unhappy with the company's stock performance. In the past two weeks, it has been meeting with prospective buyers, outlining the financial health of the company.
All interested parties have signed confidentiality agreements. But leaks of the company's projections already have begun.
The figures Knight Ridder is giving potential buyers are similar to those in a Morgan Stanley research report published in November. The report, by analyst Douglas Arthur, said an outside buyer could reduce costs by $150 million a year through a 5 percent reduction in the workforce, cutting labor costs and chopping corporate overhead.
Profit projection
The company's projections were reported in the Wall Street Journal on Tuesday and not disputed by Knight Ridder. According to the projections, a buyer could increase Knight Ridder's earnings by about 20 percent over 2004 earnings in the next 18 months by cutting jobs and benefits, streamlining operations and reducing the size of some of its 32 newspapers.
The Journal reported that two people familiar with the matter described the forecasts as overly optimistic.
On Friday, Reuters also reported complaints about the ``rosy'' future Knight Ridder presented.
Knight Ridder spokesman Polk Laffoon said the company and its financial advisers had prepared ``a wide array of information about the company, including its cost structure.''
``The items discussed in the Wall Street Journal article are not fixed -- far from it,'' Laffoon said.
``They reflect various options reviewed with people who have expressed interest in possibly bidding on the company. These options offer a variety of approaches to operational issues,'' he said. ``Whatever actions are taken would very much depend on the individual bidder, and any savings achieved would not be achieved overnight.''
Reflecting some Wall Street doubts about a deal, Knight Ridder's stock has been hovering around $63 to $64 a share, well below what some analysts had predicted the company would bring in a sale.
Henry R. Berghoef is portfolio manager and director of research at Harris Associates in Chicago, one of three major shareholders that have forced Knight Ridder to put itself up for sale. He said he remains ``pretty optimistic'' about the chances for a sale.
``I've seen a lot of names mentioned as likely bidders,'' he said. ``I see what the lenders are quoted as willing to do. All those things seem positive.''
Possible bidders
The groups interested in Knight Ridder are three media companies: McClatchy, Gannett and MediaNews Group, which has teamed up with private equity firms Madison Dearborn Partners, Vestar Partners and Onex Corp. Two other private equity consortiums have expressed interest. They are the Blackstone Group, Providence Equity Partners and Kohlberg Kravis Roberts; and Thomas H. Lee Partners, Texas Pacific Group, Hellman & Friedman and Bain Capital.
Knight Ridder publishes its fourth quarter earnings next week.
Contact Pete Carey at pcarey@mercurynews.com or (408) 920-5419.
