May 24, 2006

Philadelphia Story

Few events have shaken the newspaper industry as much as the dissolution forced by disgruntled investors of Knight Ridder, the country’s second-largest newspaper chain. That story took a new turn this week with the sale of one of the former crown jewels in the chain, the Philadelphia Inquirer and Daily News, to a group of local investors for $562 million. The Inquirer, the third-oldest American newspaper still in publication, won 17 Pulitzer Prizes between the 1970s and early 1990s, and was once widely considered the best newspaper of its size in America .

What follows is a guide to the Philadelphia newspaper situation–the players, the chronology, and the press coverage of the Inquirer deal.

The Situation

The Players

Chronology

Commentaries

Coverage of the Latest Developments


The Situation

Since 1969, The Philadelphia Inquirer and the smaller circulation Philadelphia Daily News had been owned by Knight-Ridder (formerly Knight Newspapers). When Knight-Ridder was acquired by The McClatchy Company earlier this year, it was announced that 12 of Knight’s newspapers would be sold off separately, including the Philadelphia papers, because they didn’t fit into McClatchy’s long-term strategy.

The Philadelphia dailies have not been immune from the problems that have hit the newspaper industry.

Both have seen circulation drops. From March 2003 to March 2006, the Inquirer saw its Monday through Friday circulation fall from 386,890 to 350,457 – or about 10%. The Daily News Monday through Friday circulation went from 143,631 in September of 2003 to 116,591 in March of 2006 – a drop of about 19%.

And last fall both papers announced substantial job cuts. The Inquirer said it was planning to trim 75 people from its 500-person newsroom staff and the Daily News revealed it would cut 25 staffers from its 130-person newsroom.

Along with those issues, the papers face the challenge posed by the Philadelphia metro area’s locale, straddling three different states. That puts the papers in the particularly demanding situation of serving not only readers in Pennsylvania, but also those in New Jersey and Delaware who want information on different state laws and governments. This is a particularly difficult for the Inquirer, which has a broader geographic reach.

The new owners have said they will keep publishing the Daily News as well as the Inquirer. They have also promised to keep most of the management and honor the papers’ union contracts.

The Buyer

On May 23, 2006, it was announced that a group of ten local investors, calling themselves Philadelphia Media Holdings, bought the two Philadelphia papers for $562 million. The consortium is led by Brian Tierney, an advertising executive, and Brian Toll, a founder of Toll Brothers Inc., the nation’s leading luxury home building company with a listing on the New York Stock Exchange and corporate headquarters in Horsham, PA. Click here for more background on the group’s other leading investors.

The Other Suitors

  • MediaNews Group, a chain of 40 daily newspapers that is run by veteran newspaper operator William Dean Singleton;
  • Mort Zuckerman, the owner of the New York Daily News;
  • Avista Capital Holdings, a New York private equity firm that teamed with Christopher Harte, a former Knight Ridder executive;
  • Yucaipa Cos, a Los-Angeles based private equity firm whose holdings include supermarket chains, airlines, and online entertainment; and
  • Onex Corp., a Canadian investment firm.

The Seller

The McClatchy Company, the current owner of the two Philadelphia papers, is a newspaper and Internet publisher with headquarters in Sacramento, California. The company publishes 12 daily and 16 community newspapers, including the Star Tribune and the Sacramento Bee. In March of 2006, McClatchy purchased Knight Ridder.

The Former Owner

Knight Ridder, which publishes 32 daily newspapers in the United States including The Philadelphia Inquirer and the Philadelphia Daily News, agreed to be sold to McClatchy in March 2006 after the company’s major shareholders demanded the company be put up for sale.

Chronology

November 2005: Private Capital Management, owner of 19% of Knight Ridder shares, demands the newspaper company be put up for sale after expressing disappointment in the industry’s ad revenue performance and anxiety about soaring newsprint costs.

Later that month, Knight Ridder follows Private Capital Management’s recommendation and hires Goldman Sachs and Morgan Stanley as advisers and agrees to begin accepting bids.

December 2005: The Newspaper Guild-Communication Workers of America, a union representing advertising, circulation, and editorial workers, explores buying eight unionized papers in the Knight Ridder chain, including The Philadelphia Inquirer and Philadelphia Daily News.

January 2006: Knight Ridder meets with potential bidders, including McClatchy, Media News, and several private capital groups.

March 2006: The McClatchy Company acquires Knight Ridder’s 32 newspapers for approximately $4.5 billion in cash and stock to become the country’s second largest newspaper publisher. Shortly after the deal was announced, McClatchy decides to divest 12 of the acquired papers that are located in cities that “do not fit the company’s longstanding criteria, chiefly involving growing markets,” according to a Knight Ridder press release. These twelve papers include the two Philadelphia papers as well as the San Jose Mercury News, Akron Beacon Journal, Contra Costa Times, St. Paul Pioneer Press, and Monterey Herald.

April 2006: The McClatchy Company agrees to sell four Knight Ridder papers for $1 billion in cash. The papers involved in the sale are the San Jose Mercury News, The Monterey (CA) Herald, the Pioneer Press, and the Contra Costa Times. Under terms of a complex deal also involving the Hearst Company, the Media News Group becomes the owner of all four papers.

May 2006: The Philadelphia Inquirer and Philadelphia Daily News are acquired by the Philadelphia Media Holdings for $562 million.

Commentaries

Glenn Guzzo,a long-time journalist and former member of the Knight Ridder corporate staff, offers an original essay for PEJ on the impact of the Knight Ridder sale to the McClatchy company.

“Advice from a Reader to the New Boss in Town,” Butch Ward, Poynteronline, May 24, 2006

“In Philadelphia, it will be a harder slog,” Samantha Melamed, Media Life Magazine, May 23, 2006

“In Print, Staring Down a Daily Worry,” David Carr, The New York Times, May 22, 2006

Coverage of the Latest Developments

“Local group’s higher desire led it to win Phila. papers,” Joseph N. DiStefano, The Philadelphia Inquirer, May 25, 2006

“Brian Tierney, before the pledge,” Monica Yant Kinney, The Philadelphia Inquirer, May 25, 2006

“Phila. Investors buy Inquirer, Daily News,” Joseph N. DiStefano and Jennifer Lin, The Philadelphia Inquirer, May 24, 2006.

“Philadelphia Investors Buy Two Newspapers,” Katharine Q. Seelye, The New York Times, May 24, 2006

“Knight Ridder: No layoffs planned at Philadelphia papers,” MarketWatch, May 23, 2006

“McClatchy to Sell Philadelphia Newspapers to Local Investors,” The McClatchy Company press release, May 23, 2006

“Deal to buy Inquirer, Daily News may be near,” Joseph N. DiStefano, The Philadelphia Inquirer, May 22, 2006

“Philadelphia newspaper deal expected,” Associated Press, May 23, 2006

“A Deal Is Said to Be Close for 2 Papers in Philadelphia,” Katharine Q. Seelye and Julie Bosman, The New York Times, May 23, 2006