Knight Ridder, Continued

From the Poynter Institute:

With many Knight Ridder employees still emptying their desks in the wake of the latest round of layoffs, company executives found themselves faced with potential pink slips of their own this week, courtesy of the company's biggest shareholder, Private Capital Management.

PCM warned the Knight Ridder board Tuesday that if it fails to take its advice and sell the company, PCM will likely lead an effort to get rid of current board members and executives and sell off Knight Ridder assets to the highest bidder.

With more questions than answers available by mid-day Wednesday, Poynter Online editors Julie Moos and Bill Mitchell posed a series of questions in a conversation with Poynter's Rick Edmonds and Howard Finberg. (Mitchell, Edmonds and Finberg are former Knight Ridder employees.)

[...]Poynter Online: What's the most likely next development in this story? Is Wall Street expecting Knight Ridder management to comment on PCM's action today?

Answer: Some response should be forthcoming from KR management soon, if not today. All kinds of companies have resisted take-over attempts over the years, and the betting is that KR will describe the PCM pitch as a bad idea. The big question on Wall Street, meanwhile, is just who might be willing to pay a premium take-over price for Knight Ridder under current market conditions?

What options might KR management be considering today, assuming they want to resist the proposed sale?

Basically three: They could tough it out and hope that a meaningful offer does not materialize; they could seek a friendly merger or buyout partner (a "white knight," in Wall Street terms); or they could reject a premium offer if and when it's made. Option #3 could be difficult, depending on shareholder sentiment.
 
We're not sure what, if any, insulation Knight Ridder might have installed in its financial structure to protect itself from a hostile take-over.

[...]If you were one of the thousands of Knight Ridder employees today -- or the thousands of others who are KR retirees or former employees with some stake in the form of stock ownership or as-yet-unused pension benefits -- what would you advise?

There may be some up-side for employees and others who own stock, in the event of a takeover that included a premium price paid for the stock. We're not sure what would become of the Knight Ridder pension plan if the company is sold.

What are the possible explanations for what's really going on here?

PCM clearly believes there is a buyer out there willing to pay a premium price, thus creating a windfall for the investors whose money it manages.

[...]What about the "Tony factor"?

[Tony] Ridder has made it clear that he does not want to be the one to preside over the dismantling of the company. As much as the stock has been dispersed widely, his family name is still on the door.

[...]What are the implications for citizens and readers that PCM, while asserting "long respect for KR's distinguished history of serving the public," demonstrates such single-minded focus on the price of the stock?

If PCM leads a takeover of Knight Ridder, it would do so in order to sell off its assets or find subsequent buyers at even higher prices. It seems unlikely that PCM would spend much time focused on the quality of the journalism or public service rendered by Knight Ridder operations.

Why Knight Ridder? What makes this company an attractive takeover target, at least in the eyes of PCM?

Knight Ridder is unusually vulnerable because it has no class of family ownership in its stock set up. CEO and Chariman Tony Ridder owns 1.9 percent of the company stock, but that's insignificant in this scenario. Other reasons include its relatively lower stock valuation. It's also smaller than some other publicly traded media companies, such as Gannett and Tribune.

What's next?

We don't know, but we're betting Knight Ridder will have something to say soon -- and that PCM has a few other things up its sleeve.

Poynter asks readers to, "add your own questions -- and answers -- in the feedback area attached to the article."