Knight Ridder in grave danger?

In a piece on Grade the News web site, Lou Alexander makes the point that Knight Ridder is in grave jeonpardy and provides some forceful arguments. Alexander spent 20 years in the advertising department of the San Jose Mercury News, rising to the top jobs in both display and classified before retiring in 2004. Before turning to the business side, he was a journalist for eight years. He lives in San Jose. Grade the News is a media research project focusing on the quality of the news media in the San Francisco Bay Area. It is based at San Jose State University's School of Journalism and Mass Communications and affiliated with Stanford University’s Graduate Program in Journalism.

Alexander writes that “power brokers on Wall Street have ensured that the relatively comfortable status quo employees and readers of Knight Ridder's newspapers and Web sites enjoyed as recently as Monday is gone. Things are going to change forever in the 29 markets the company serves with daily newspapers and the 110 markets reached by Knight Ridder Digital. None of the scenarios that can reasonably be anticipated allow Knight Ridder and its newspapers to operate in the future as they have in the past. And I assure you there will be chaos and uncertainty”

On Tuesday Bruce S. Sherman from Private Capital Management, L.P., the largest shareholder in the company, wrote Knight Ridder's board of directors urging them to "aggressively pursue the competitive sale of the Company" because of the poor performance of the stock. If the board is not willing to sell the company Sherman threatened what would essentially be an unfriendly takeover. PCM owns about 19% of Knight Ridder Inc.

The second largest owner of KRI stock is Southeastern Asset Management Inc. It holds an 8.9% stake in Knight Ridder, and in a regulatory filing on Thursday said that it wants the flexibility to enter talks with management and other shareholders about the future of the company.

The third-largest owner of KRI stock is Harris Associates L.P., a Chicago-based money manager. They sent a letter to Knight Ridder's board this morning urging the company to consider offers "immediately" given the wide gap between the company's current share price and its fair value. Harris has an 8.2% stake in Knight Ridder.

These three companies own an aggregate of more than 35% of Knight Ridder stock. Although this is probably enough to force a sale in the arcane world of public companies, they will have little trouble getting the votes of more than 50% of the stockholders if they need it. Knight Ridder does not control its own stock. About 90% of Knight Ridder stock is owned by institutions rather than individuals. According to Yahoo Finance, about 57% is owned by 10 large institutional investors, including the three listed above. Another 17% is owned by 10 large mutual funds.

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