Knight Ridder sale's fallout should miss Seattle for now

At least for now, Monday's blockbuster nationwide newspaper deal probably will have little impact in Seattle, even though 49.5 percent of the voting shares in The Seattle Times Co. are changing hands.

Knight Ridder, which has owned the shares for 78 years, has almost no say in how The Times is run. The McClatchy Co.'s purchase of the much larger Knight Ridder — a deal in which 32 daily newspapers will be sold — shouldn't change that, industry observers say.

"As long as the [corporate] structure is the way it is, ... it seems to me it wouldn't matter a great deal to the operation of the company," said University of Washington journalism professor Doug Underwood

The family-controlled Blethen Corp. owns the remaining 50.5 percent of The Times' voting shares, controls a majority of seats on the company's board and makes all the big decisions — sometimes over Knight Ridder's objections.

McClatchy's purchase of Knight Ridder, valued at $4.5 billion plus assumption of $2 billion in debt, also isn't expected to have any immediate impact on the long legal struggle between The Times and The Hearst Corp., publisher of the Seattle Post-Intelligencer, over the joint operating agreement (JOA) under which the two newspapers publish.

But Underwood and some other industry experts speculated McClatchy may be more inclined than Knight Ridder to sell its interest in The Times. If it does, the Blethens, and perhaps Hearst, are the only possible buyers, they said.

Larry Grimes, president of W.B. Grimes and Co., a Maryland-based firm that specializes in media mergers and acquisitions, said he suspects McClatchy already has either invited the Blethens to make an offer — or has offered to buy them out. A minority stake with no control over management probably isn't appealing to McClatchy, he said.

Times spokeswoman Jill Mackie would not comment. Calls to a McClatchy spokeswoman were not returned.

Sacramento, Calif.-based McClatchy, which publishes 12 daily newspapers, including The (Tacoma) News Tribune and Tri-City Herald in Eastern Washington, announced Monday it is buying troubled Knight Ridder, the nation's second-largest newspaper company.

2 in Washington

Knight Ridder's 32 daily papers include The Bellingham Herald and The Olympian in Washington, both of which it acquired recently in a swap of papers with Gannett.

McClatchy said it would sell 12 of the Knight Ridder papers, including those in Philadelphia and San Jose, that don't fit its corporate strategy. The two Washington papers and the minority interest in The Seattle Times were not on that list.

McClatchy Chairman and Chief Executive Gary Pruitt mentioned The Times only in passing in a conference call with Wall Street analysts Monday. In response to a question, he said he didn't think McClatchy's ownership of the Tacoma paper and 49.5 percent of The Times would pose an antitrust problem.

While some observers think the stake may be subject to sale, Pruitt's comment implied McClatchy plans to keep its newly acquired piece of The Times, Morgan Stanley research analyst Douglas Arthur said in an e-mail.

Industry consultant John Morton agreed. Based on Pruitt's comment, "my best guess is they're just going to sit on it," he said, "but who knows?"

The Blethens sold the 49.5 percent interest in The Times to a Knight Ridder corporate ancestor for $1.5 million in 1928, when the paper was hurting financially. Since then, the relationship has often been rocky.

Knight Ridder CEO Tony Ridder has publicly criticized Seattle Times management. Even in flush years, he complained the privately held company, which also owns the Yakima Herald-Republic and Walla Walla Union-Bulletin in Eastern Washington and newspapers in Maine, wasn't making enough money.

Knight Ridder tried on several occasions to buy out the Blethens, offering more than $700 million in 2000, but was rebuffed each time.

Acquiring Knight Ridder's minority interest in The Times is a longtime Blethen goal, but the two sides have never been able to agree on a price.

Deal maker

McClatchy's purchase of Knight Ridder could break that stalemate, some observers say. "I could imagine them saying, 'Let's sell this baby back. Let's get rid of it,' " Underwood said.

Recent Wall Street research reports on Knight Ridder have valued its interest in The Seattle Times Co. at anywhere from $50 million to $286 million. The Blethens probably could borrow enough to buy out McClatchy, Grimes said.

But Underwood said a recent string of unprofitable years, coupled with the long, costly JOA battle, may have affected the Blethens' ability or willingness to take on more debt.

A Hearst purchase of the minority interest in The Times is a possibility, said Peter Horvitz, publisher of the Kent-based King County Journal. But that would probably raise antitrust concerns unless it is part of a settlement to resolve the JOA dispute, he and Morton said.

Since 2003, The Times has pressed to invoke an escape clause in the JOA contract that could end the agreement, close the P-I or both. The Times, which handles advertising, circulation and production for both Seattle papers, contends the arrangement no longer works and threatens the company's long-term profitability.

Hearst has said the P-I can't survive outside the JOA.

Horvitz also said that, despite Pruitt's assertion to the contrary, a McClatchy stake in The Times, coupled with its ownership in Tacoma, could raise antitrust questions.

His 41,000-circulation paper already has a hard enough time competing with the Times/P-I market power, Horvitz said. With McClatchy and The News Tribune potentially added to the mix, "maybe it's just an outrageously anti-competitive situation," he said.

Little overlap

But Underwood said antitrust laws shouldn't be a concern because The Times and News Tribune don't really vie for advertisers and readers.

Recent audit reports show just 2 percent of The Times' daily circulation is in Pierce County, while just 7 percent of the News Tribune's daily circulation is in King County, mostly in Auburn and Federal Way.

If The Times and News Tribune do view themselves as rivals, having McClatchy representatives on the Times board could pose problems, said Warren Boeker, a professor of management and organization at the University of Washington's business school. "It's an interesting issue, having a minority interest in one [paper] and full control of the other," he said.

The prospect of such conflicts could be another reason for McClatchy to sell its stake in The Times to the Blethens, Underwood said.

But Grimes said a McClatchy-Times partnership could provide opportunities for synergy, such as consolidating news bureaus or offering package deals to advertisers. "They may look at it as an opportunity," he said.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com