Sherman's march on Knight Ridder

The February/March 2006 issue of Columbia Journalism Review has an insightful, in-depth article by senior writer Charles Layton on how Naples, Florida, money manager Bruce S. Sherman muscled Knight Ridder—the nation’s second-largest newspaper company—into putting itself up for sale.

The idea for the title “Sherman’s March” could have been picked up from an earlier blog post in which we likened Sherman to another man by the same name– Civil War General William Tecumseh Sherman. That Sherman said “war is hell.” Sherman S. is a modern-day comparison as the Scourge of Knight Ridder as Layton refers to him.

Layton, like many others, tried but did not get an interview with Sherman. It is difficult to find much about him by Googling. You can learn more about Chicago’s famous chef by the name Bruce Sherman. Layton says the Bruce from Naples looks a little like Regis Philbin. You can check our Many Faces to form your own opinion.

If you go to the Private Capital Management web site, however, there is a menu item for News/Articles where you can find a 33-page booklet in Adobe Acrobat format (pdf) which contains a Q&A interview of Sherman by Peter J. Tanous for his 1977 book “Investment Gurus.” There you can read Sherman’s thinking in his own words. (Caution: Don’t try to download it with a dial-up provider because it will take more than an hour)

Here, for background, are a few graphs of Layton’s article:

On July 19, the board of directors of Knight Ridder, the country's second-largest newspaper chain, held a most unusual meeting. It was at the Ritz-Carlton Hotel near the top of San Francisco's Nob Hill, and it was unusual because, as the 10 board members convened, representatives of Knight Ridder's three biggest shareholders were camped outside the door, waiting to air their gripes about the company's stock performance.

This meeting would mark the start of an insurrection that ultimately would force the board to put Knight Ridder up for sale, threatening the future quality of its journalism and causing tremors throughout the newspaper industry. One restive shareholder in particular, Bruce S. Sherman of Naples, Florida, was the instigator and ringleader.

Sherman (or rather, the institutions and rich individuals whose wealth he manages) owned about 19 percent of Knight Ridder – a huge stake, far larger than anyone else's. He had been accumulating it for five years, starting with less than a million shares and adding more as his investment group attracted new clients.

When Sherman first began buying the stock in 2000, it was selling in the low to mid $50s.

On the day of the board of directors meeting, Knight Ridder shares were selling at $62. Sherman owned 13 million of those shares, for which he had paid, in the aggregate, about $65 a share. He was under water on the stock.

Not only was Sherman losing his shirt on these stocks, they were a drag on his whole enterprise.

This sale, if it happens, will constitute the first big-time hostile takeover of a U.S. newspaper company. But maybe not the last. Some on Wall Street are hoping it could trigger a broader wave of consolidation, with all of the investment banking deals, lawyers' and consultants' fees and stock windfalls that this implies. Many who work at newspapers – especially those belonging to Knight Ridder – worry now about their careers and the future of their profession. The assumption is that whoever buys Knight Ridder will make drastic cost cuts, to the detriment of good journalism and the company's long-term strength – a sad end for an organization whose 32 daily papers, including the Philadelphia Inquirer, Miami Herald and San Jose Mercury News, have won 60 Pulitzers over three decades. But for Sherman, the sale is an exit strategy. It could bail him out of a tough spot, maybe with a decent profit.

If you are a BJ-type and wonder if JSK is rolling over in his grave, you will want to click on the headline to read all of Layton’s very good article.