Under growing pressure from big shareholders, Knight Ridder, the publisher of 32 newspapers including The Miami Herald and The Philadelphia Inquirer, said yesterday that it was considering a sale of the company.
Knight Ridder, which like much of the newspaper industry is contending with falling circulation and tepid revenue growth, said it had hired Goldman Sachs to help it evaluate "strategic alternatives." There is no guarantee that it will reach a deal, the company said.
Industry experts said Knight Ridder could attract interest from other newspaper publishers, leading media investors and private equity funds. But they noted that buyers might prefer to acquire its properties piecemeal rather than together.
On Nov. 1, Private Capital Management, a money management firm in Naples, Fla., that owns 19 percent of Knight Ridder, cited the flagging stock price and threatened to replace the board or to take it over if it did not "aggressively pursue the competitive sale of the company."
Two days later, Harris Associates, which owns 8.2 percent of Knight Ridder and is the third-biggest shareholder, demanded that management "solicit offers for the company to maximize the value of Knight Ridder for its shareholders." The second-biggest shareholder, Southeastern Asset Management, did not go that far, but it has asked to meet with management.
Since Private Capital's demand became publicly known, Knight Ridder's stock has gained new life. It rose 60 cents yesterday, to $63.10, and has made up three-fourths of a 21 percent decline in the first 10 months of the year. Based on that price, the company, based in San Jose, Calif., has a market capitalization of $4.5 billion, up from $3.8 billion at the end of October.
The recent actions involving Knight Ridder may be a sign that other chains will face similar demands, said Conrad C. Fink, who teaches newspaper management at the University of Georgia. "This is now the opening bell on a round of threats to any publicly owned companies in this country," he said. "Those with two classes of stock, like The New York Times and The Washington Post, are protected. I feel that newspaper companies are profoundly undervalued today, and investors are becoming aware of that. This makes it ripe for the picking."
The Times Company and The Washington Post Company are publicly traded, but the Sulzberger family controls a majority of Times voting stock and the Graham family has similar control at The Post.
Private Capital Management, a subsidiary of Legg Mason, is a major shareholder in a number of newspaper chains. In addition to 14.6 percent of The New York Times Company, its holdings include 6 percent of Gannett, 37.1 percent of McClatchy and 26.2 percent of the Belo Corporation. Private Capital declined to comment yesterday.
Henry R. Berghoef, director of research at Harris Associates, noted that over the years, newspapers had sold for 12 to 13 times their cash flow. Using that measure, Knight Ridder could fetch $6.1 billion to $6.6 billion.
"I am not predicting that it would fetch that price," Mr. Berghoef said. "By the same token, I would say until proven otherwise, we will see."
But other analysts, including Lauren Rich Fine of Merrill Lynch, are skeptical that Knight Ridder would command so large a premium. She said that if Gannett emerged as a bidder, it would probably offer no more than $4.8 billion. Measured by circulation, Gannett is the nation's largest newspaper publisher, followed by Knight Ridder.
Gannett, though, might not bid at all, having recently indicated a preference for investing in nontraditional media companies, Ms. Fine said. She suggested Philip Anschutz, a billionaire investor in Denver who has started free papers in San Francisco and Washington, as a possible suitor. A spokesman for his company, Jim Monaghan, said it was not interested in buying Knight Ridder.
Newspaper companies, though still profitable, have an uncertain future as the Internet cuts into print readership and revenue. Most newspaper Web sites do not charge for their content, for fear that readers will balk at having to pay for it. Advertisers also pay far less for online advertising than for print ads. In addition, online services like Craigslist and Monster have put a big dent in newspapers' once-lucrative classified advertising revenue.
Those challenges, on top of specific weaknesses at Knight Ridder's biggest newspapers, make it unlikely that the company will attract a high-paying suitor, Ms. Fine said.
Professor Fink agreed that some of the biggest Knight Ridder papers might not be attractive purchases, but said that the chain's newspapers in fast-growing markets like Charlotte, N.C., and Columbia, S.C., would be attractive to buyers. "There is nothing in the stars that says there has to be a single buyer who can take the whole thing and digest the whole thing," he said.
A Knight Ridder spokesman, Polk Laffoon IV, declined to elaborate on the company's announcement.
In a rare move for a public company, Knight Ridder also said it would allow investors to submit board nominees and other proposals for all shareholders' consideration at the annual meeting on April 18.
In a memo to employees, P. Anthony Ridder, the chairman and chief executive, said the company might decide not to sell and he would not say how long the board might take to consider alternatives. He praised the company's journalism and exhorted employees to remain committed in uncertain times. "Indeed, a big part of all of our jobs will be to stay focused," he wrote. "Nothing could be more critical to the best outcome of the process we're now in than that we run our businesses well."