McClatchy faces 50% writeoff of KRI deal

The McClatchy Co. could be on track to write off half of the $4.4 billion it paid for the Knight Ridder newspapers it proudly acquired in the summer of 2006.

That's the word from Alan D. Mutter, writer of a blog called Reflections of a Newsosaur. He writes:

The dramatic failure of the transaction – which took place in the early days of a catastrophic downturn for the newspaper industry that few foresaw at the time – is evident in McClatchy’s announcement that it will have to take the second writedown in three months to reduce the value of the KRI assets it carries on its books.

McClatchy said it would take a still-to-be-determined accounting adjustment to reflect the $602.2 million drop in the price of its shares in the fourth quarter of last year. Since the end of 2007, its shares have plunged another $173.4 million to close today at $10.54 per share. Thus, the market capitalization of the company has fallen in five months by $775.6 million from $1.6 billion on Sept. 30 – a plunge of 51%.

Lest we forget, McClatchy’s shares were worth some $2.5 billion on the day before it announced its plans to buy KRI in March, 2006 – vs. $865.9 million today.

The deep drop in the value of the McClatchy’s shares in the fourth quarter of 2007 is forcing the publisher to take the second extraordinary charge against its earnings in as many quarters. In the third quarter of 2007, McClatchy wrote off nearly $1.4 billion of the value of the goodwill of the assets it acquired when it purchased Knight Ridder.

If you add the $1.4 billion writeoff in the third quarter to the $775 6 million drop in the stock to date, the sum is equal to a shade under $2.2 billion, or almost exactly half of what McClatchy paid to buy Knight Ridder in the summer of 2006.

Click on the headline to read the full article by Nutter.

Note: Alan D. Mutter began his career as a newspaper columnist and editor in Chicago, starting at the Chicago Daily News and later rising to City Editor of the Chicago Sun-Times. In 1984, he became the No. 2 editor of the San Francisco Chronicle. He left the newspaper business in 1988 to join InterMedia Partners, a start-up company that within five years became one of the 12 largest cable-TV companies in the U.S.