Newspaper Guy Bets Big
The years will decide if Gary B. Pruitt's $4.5 billion gamble on Knight Ridder Inc. (KRI ) was prescient or preposterous, but for now the McClatchy Co. (MNI ) chairman and CEO is the rarest of birds, a media executive willing to double down on newspapers.
Pruitt is 48 and looks younger, which makes him a teenager compared with typical newspaper bosses. He has the hair, looks, and unruffled demeanor of a class president, but his references to the Rolling Stones and Elvis Costello reveal a desire to score points with the cool kids. A former First Amendment lawyer, he is, for good or ill, a newspaper guy, and his main directive is simple and not at all novel. Newspapers, which "hold onto audiences better than any other local media outlet," need to expand into other channels, including online. (It's bitterly ironic that Knight Ridder Chairman and CEO P. Anthony Ridder lost the empire founded by his great-grandfather in 1892 to a younger executive who preaches Ridder's own philosophy.) With the deal, McClatchy's 12 dailies become 32, and annual revenues more than double, to around $2.8 billion.
Pruitt believes, touchingly, in newspapers. He tells me that newspapers' online revenues may not exceed print revenues even 10 years hence, which is probably right, and that the growth of craigslist and other almost wholly free classified sites "does not mean that [newspapers' classified] revenues over time will shrink," which is almost certainly wrong. Still, he has managed to please both Wall Street analysts worried about numbers -- in press accounts they sound like high schoolers with crushes -- and editorial types worried about journalism. His company has also maintained circulation levels even as some peers struggle to stem gruesome declines.
THIS McCLATCHY NARRATIVE IS ABOUT to become much more familiar since Pruitt, for years newspapers' next great executive, now plays in the majors. But when congratulated, in jest, on becoming the guy who's expected to save the American newspaper industry as we know it, he chuckles and shoots back: "Don't put that on me." He's right to shun the big-picture burden. Pruitt is all about picking his spots. His deal for Knight Ridder involves reselling 12 papers in markets that do not fit what he identifies as key population growth metrics. And selling off papers in tougher markets, such as Philadelphia and Akron, significantly sweetens the purchase, which involved assuming $2 billion in debt. According to one financial analyst, profit margins at the Knight Ridder dailies he's keeping are around 30%, vs. around 15% for those on the block, and selling those properties spares McClatchy from contending with eight unionized papers. Pruitt promised to cut $60 million in costs after the deal and, while denying that "draconian" cuts are pending, he hinted that there will be some changes. "Newspapers need to be more efficient," he says, "especially those built during the good old days" of less competition.
Note to staffers at McClatchy's new papers who tremble over the implications of that remark: Wait till you see what the new owners do to the Knight Ridder papers McClatchy isn't keeping. Likely to win a few is W. Dean Singleton, CEO of Denver-based MediaNews Group, who is not noted for niceties when it comes to cost-cutting. (This gives McClatchy an excellent negotiating ploy with unions that are talking about bidding on those papers: Bid high, or work for notorious hardballer Singleton.)
Pruitt's last two major acquisitions, both in the '90s, went swimmingly, but this deal occurs in a stingier era. Analysts pegged the sale price as being 9.5 times Knight Ridder's projected 2006 earnings before interest, taxes, depreciation, and amortization. This is notably lower than historic sale multiples for newspapers. Much can be made of how the market overvalues some assets and undervalues others, as anyone who lived through the dot-com boom can attest, but one notion nags: Pruitt's manner may be more steady operator than farsighted visionary, but he's still widely considered the best in the business.
What if that's not enough?
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By Jon Fine