Newspaper Ownership - 2006 Annual Report

Earlier in the year, the biggest transaction of note was a three-way swap involving Knight Ridder, Gannett and Media News. Knight Ridder sold the Detroit Free Press to Gannett. Gannett transferred its Detroit News to MediaNews, owned by Dean Singleton , and restructured a joint operating agreement (JOA) between the two papers so that the Free Press gets 95% of the profits. Knight Ridder also sold the Tallahassee Democrat to Gannett, receiving three papers in the Pacific Northwest and cash in return.5

It was a sad end to the downward trajectory of Knight Ridder’s Detroit efforts. When the company entered into the JOA with Gannett in 1989, it looked like a license to print money on both sides. But the papers were hit with a protracted strike, and neither circulation nor advertising fully bounced back. The Free Press emerged as the circulation leader and was holding its own editorially. Along with other Knight Ridder papers, however, it went into a shrinking mode in both circulation and news investment.

In other 2005 transactions, Lee Enterprises completed its $1.5-billion acquisition of Pulitzer in January 2005 and vaulted to being the fourth largest public company in total circulation. Later in the year the Lawrence Eagle-Tribune, a well-regarded family-owned paper near Boston , was sold to Community Newspaper Holdings Inc. (CNHI) of Alabama.6

Market conditions did change during the year, but in offsetting ways. The 2005 climate was better for mergers and acquisitions generally than the first years of the decade. The reasons included abundant capital, still-moderate interest rates and the reduced share prices for newspaper stocks . There was buzz that financial groups with lots of money looking for deals might emerge, and they did turn up in the first round of Knight Ridder bidding.

But with all newspaper stocks down substantially, it was a disadvantageous time for companies like Gannett or Tribune to go on a shopping spree with cash, their own stock or added debt. Tribune, especially, had ample problems of its own. It also suffers from the perception that it paid too much and has delivered too little in its big 1999 acquisition of Times Mirror. Those papers — including the flagship Los Angeles Times — have not been strong financial performers.

Furthermore, the newspaper companies were using available cash and borrowing to acquire assorted Internet businesses, not other daily newspapers.7 (The Internet acquisitions are discussed separately in the Economics section of this chapter)

Could others get caught up in a Knight Ridder scenario? That seems unlikely. Though it is not always apparent, most independent newspapers, private chains, and even public companies are under family control (see accompanying chart). They are for sale only if the family chooses to put them in play, and there is no evident momentum for that. But speculation continues. Copley (private, its flagship the San Diego Times-Union) and Media General (public with family control) are seen as prospects because of generation shifts in top leadership.

Dow Jones has underperformed the rest of newspaper stocks because of sustained weakness of technology and financial advertising in the Wall Street Journal. Sale rumors resurfaced in August, and some critics increasingly argued that the company was poorly managed.8 The controlling Bancroft family offered a different solution than selling in January 2006 when the Dow Jones board replaced CEO Peter Kann with his No. 2, Rich Zannino. Karen Elliott House, the Wall Street Journal’s publisher and an aspirant for the top job, resigned.9 Investors responded positively to the changes. Dow Jones stock rose nearly 10% in the next several days.10

Finally, Freedom Newspapers (private, biggest holding the Orange County Register) teamed with an investment consortium in late 2003 to buy out dissident Hoiles family members. The disgruntled losers in that auction (Gannett and Media News) speculated that the company could be back on the block as soon as 2006 or 2007.

It remains theoretically possible that one or several of the public companies could put together a leveraged buyout and go private. But in practice that would mean trading a set of demanding owners for a set of demanding banking partners.

It is also possible, especially as stock prices get hammered down, that wealthy individuals may want to buy a paper as a trophy property like a sports franchise. The entertainment magnate David Geffen said in September that he wanted to acquire the Los Angeles Times.11 He got a meeting with top management at Tribune and a polite reply that the newspaper was not for sale. The billionaire Philip Anschutz extended his free-distribution Examiner papers to Washington and Baltimore. There is no indication yet how they are doing, though he has the deep pockets to carry years of start-up losses. The company is private, and releases little financial information.