Knight Ridder Agonistes

A major newspaper investor is rattling his saber, loudly, over at Knight Ridder. That investor—Bruce Sherman, who heads up Private Capital Management LP— just got a hell of a lot more famous.

Should it someday come down to a sale, I’d look for the buyer of Knight Ridder to be drawn from a small pool of potential suitors: Gannett, the privately-held Media News Group, and some private equity players to be named later.

Don’t rule out a combination of those contenders, either. MediaNews and Gannett just joined with Knight Ridder in unwinding the joint ownership of Detroit’s two daily newspapers, the Free Press and the News. (Gannett formerly ran the News and now owns the Free Press; MediaNews now owns the News.) MediaNews CEO W. Dean Singleton has proven the industry’s most resourceful and elastic executive in finding ways to make deals, or even in .

What’s happening now with Knight Ridder is uncharted territory. Sherman owns significant chunks in newspaper companies ranging from the New York Times Co. to McClatchy, and has done so for years. But this is the first time he’s kicked up a fuss over newspaper company performance. Given the overall performance of the group this century, it makes you wonder why now, and why Knight Ridder? (One easy answer: Knight Ridder doesn’t have the split-stock structure places like the Times Co. instituted to maintain family control. Mario Gabelli has long owned a large chunk of Media General, which owns the Richmond Times-Dispatch and 24 other dailies and 26 TV stations. He’s agitated about company strategy for years, but its split-stock structure makes putting the company in play virtually impossible.)

The newspaper industry narrative is basically this: Whenever a new medium arises, people say newspapers are totally screwed. But they’ve been wrong. Until now, that is, when newspapers might be totally screwed. Still, even if newspapers are in serious secular decline, they continue to throw off serious cash.

Just got off the phone with a newspaper exec who pointed out that newspaper stocks are trading around 8 times EBITDA (oh, all right: Earnings Before Taxes, Depreciation, and Amortization) but recent newspaper deal valuations are around twelve times EBITDA: “When Wall Street devalues a sector but there’s still lots of value there”—this, again, is a newspaper guy talking—“that’s when private equity comes calling.”

Old-school journalism types frequently utter earnest, thumb-sucking sentiments wondering if newspapers would be better off under private ownership. Being owned by private equity is probably not what they have in mind.

Before it's here, it's on the Bloomberg Terminal.