If you are looking for my observations on the final Knight Ridder annual meeting please scroll down. That post is immediately below.

Patrick Mattimore, a San Francisco attorney who has written commentary in the past for Grade the News, has asked me some questions in a comment on my previous post. I wanted to be able to provide links in some of my answers so I am using a separate post to respond.

His questions are in boldface.

1. You wrote that some people are clearing out their offices. Did McClatchy fire staff? What kind of numbers are we talking about?

There is a probably a thin semantic line here but I do not think McClatchy has fired any Knight Ridder employees. Instead, McClatchy bought Knight Ridder and chose not to offer jobs to almost the entire corporate staff. The corporate staff’s old employer no longer exists so there is no longer anyone left to issue them paychecks or pay their infrastructure costs. Their jobs were elminated

There are a couple of exceptions:

According to Editor and Publisher “only Tony Ridder, chairman and CEO of Knight Ridder, and an administrative assistant will maintain an office in the building for another month.”

Also, Margaret Randazzo, a member of the Knight Ridder Corporate staff, has been named publisher at the Modesto Bee. According to the Bee she is “a certified public accountant, she has spent most of her career as a financial officer with Knight Ridder and at its daily newspaper in Texas, the Fort Worth Star-Telegram.”

I do not know how many people were on the corporate staff.

2. As I look at today’s MN (Wed.) it is virtually indistinguishable from yesterday’s product. What does the sale mean in day-to-day terms for readers?

The changes between the Tuesday Mercury News and Wednesday Mercury News were very small. All I could see was that the Knight Ridder logo had disappeared from the color density bar on the bottom of the front page and from the masthead.

I would not expect many changes between now and the time the sale of the Mercury News to MediaNews is completed. There may be the occasional “McClatchy News Service” story in the paper but that will be about it.

My opinion is that McClatchy does not want to invest any management time in the papers it is selling. San Jose and the others will be largely left alone to operate as they see fit, within normal financial budget constraints.

Even after the MediaNews sale is complete I would not expect immediate, wholesale changes.

It will take a while for Singleton’s operation to swallow this large of an acquisition. Also, all of the MediaNews folks I talk to say that Singleton is sincere about allowing the local papers to operate with considerable autonomy.

The changes will come after the Mercury News and other papers MediaNews has acquired face their first financial budgets. Under Knight Ridder the Mercury News operating profit this budget year would have been about $20 million. If Singleton demands an immediate increase in that number—to $25 million or more—then the newspapers will have to use their local autonomy to figure out how to achieve that goal.

If that happens the clustering of editorial and business function that many have feared will happen quickly.

Also, the quality of the content of the newspapers will go down and newshole is likely to be greatly reduced.

For instance, the six-page Sunday Perspective section could be eliminated and replaced with an editorial page and op-ed page in another section. This would save a couple of hundred thousand a year in newsprint. Also, if four pages a week were eliminated there would be savings in copyediting shifts and probably in freelance expenses.

3. Is this different than say the sale of a baseball franchise to new owners? How?

I am not a sports fan and I am not sure what happens when a baseball franchise is sold. But, from a business perspective, this sale is a lot like the sale of Kmart to Sears. One company bought out another one; kept some of the properties, sold some others; kept most people at the store level and got rid of most of the people at the corporate level.

4. What will be happening to the KR San Jose offices?
The corporate staff was supposed to be out of them by “close of market” yesterday. That is 1 p. m. PDT, although I am told people were given until 4 p. m. local time to clear out.

According to the Mercury News the Knight Ridder sign will stay up for now, until new tenants take the space.

People told me at the final annual meeting Monday that they have seen potential tenants inspecting the space. The Knight Ridder office space is valuable real estate and is likely to fill up quickly.

5. Translating the only slightly improved position of the stock from the time PCM demanded the sale, what was the point of this?

It depends on which spinmeister you believe. Bruce Sherman from PCM says he hit a single. He claims to be satisfied since the final value of the deal was a higher price per share than the KRI value a year ago.

There are at least some observers who don’t buy it, including me. I am told Sherman thought the company would sell for a price of more than $70 a share. If that was his goal he hit a blooper to the infield.

Also, he ended up with over 6 million shares of McClatchy and has to hope Gary Pruitt can deliver a healthy increase in share value. Sherman has been criticized for owning too much newspaper stock. Forcing the sale of Knight Ridder did not reduce his newspaper holdings by much.

6. Was I reading this right? That the sale went through 80.1% and needed 80%. If so, why wasn’t there a push at some point to resist this? I’m no math genius but why can the Tribune Company apparently resist a push from Chandler but it wasn’t done in this case?

You read it the same way I did and this is the toughest question you asked.

Tony Ridder has repeatedly maintained that it was not possible to fight the demand that the company be sold. He and the board had already bought back shares, gotten rid of the Detroit Free Press and taken some other steps to drive margins. But that was not enough to satisfy Bruce Sherman and PCM.

Because the dissident share holders (lead by Sherman) controlled a majority of the shares, Tony says, they could have elect people to the board and taken control of the company. If that happened, he said Monday, this could have resulted in the share holders not receiving a “change of control premium” for their stock.

All that is true, but there was another possibility. Tony and others at the top of Knight Ridder could have borrowed the billions necessary and done a leveraged buyout of the company.

This leveraged buyout was one of the options discussed in the Morgan Stanley review (by Douglas Arthur) of Knight Ridder’s situation last November. Their view of an LBO was favorable, although not wildly so.

Beyond this, I have not read or heard much of anything about a LBO.

One of my far-flung correspondents has maintained that none of the senior people in Knight Ridder have enough passion to lead an LBO effort.

My own view is that an LBO would have required unpleasant decisions, like those made by McClatchy to sell of some of the newspapers. I do not believe anyone at Knight Ridder Corporate was prepared to make those kinds of decisions.