Workers wage uphill battle to commandeer Knight Ridder papers

By Michael Stoll
Posted Dec. 24, 2005

A union offer to orchestrate a "worker-friendly" buyout of parts of the Knight Ridder newspaper company has sparked excitement among employees at the chain's papers across the country, union leaders said this week.

The union proposal to purchase nine newspapers, including the San Jose Mercury News but not the Contra Costa Times, was met with skepticism from Knight Ridder executives, who are determined to sell the company whole. But Linda Foley, president of the Newspaper Guild, which represents more than 34,000 newspaper workers nationwide, said the offer was only one of several scenarios that would leave the newspapers in part or entirely owned by employees.

Polk Laffoon, vice president of corporate relations at Knight Ridder, told Grade the News Friday that the union's first bid doesn't qualify: "We are exploring our options for the whole company. We have no interest in selling individual newspapers or groups of newspapers."

He cast doubt on the ability of the union alone to muster the capital needed to buy the papers. Consultants from Morgan Stanley, in a memo late last month, valued the entire company at more than $4 billion, and Knight Ridder's acquisition team is hoping for bids in that range.

Mr. Laffoon said the outside acquisition team Knight Ridder has hired "would listen to a substantive bid from anyone who would be interested in a competitive bid."

Last month Knight Ridder said it intended to put the company, its 32 newspapers and various Web and multimedia services up for sale to the highest bidder. Several newspaper chains and investment companies have submitted bids. Investor Bruce Sherman of a Florida firm called Private Capital Management, which owns 19 percent of Knight Ridder stock, advised the company offer itself for sale in order to reap higher profits for current shareholders. Two other major investors in the company concurred.

Morgan Stanley estimates the company could find $150 million to $350 million in savings, mostly by cutting payroll. But some prominent journalists have objected publicly to such a crude bottom-line approach to a business that they say is also a vital public institution.

For several weeks, Guild members across the country have been talking about a range of solutions that would save jobs at the companies. In an effort to avoid a takeover by a new owner who would seek to slash staff, the Guild has contracted with an investment bank and a consulting firm to study alternative ownership structures, some of them relatively untested in newspapers.

The current proposal calls for the establishment of an "S corporation," a complex ownership structure that involves the voluntary, tax-deferred investment of part of workers' retirement funds. The plan might also involve the issuance of bonds or other debt instruments to investors to raise the rest of the necessary capital.

Other possibilities include recruitment of multiple "worker-friendly" investment companies or the creation of a nonprofit company.

At the San Jose Mercury News, the announcement comes as a relief to some. The paper has been cutting staff for years, and in September announced that it was cutting 52 more newsroom positions through employee buyouts.

"Psychologically, it's very stressful to sit around and wait for something to fall on your head," said Luther Jackson, executive officer of the San Jose Newspaper Guild, which represents employees at the Mercury News. "To the extent that we've been critical of how other people run newspapers, now we'll have a chance to show that we can do it better."

The Guild offered to buy Knight Ridder papers where employees are members: the Mercury News, Monterey Herald, Philadelphia Inquirer, Philadelphia Daily News, St. Paul Pioneer Press in Minnesota, Akron Beacon Journal in Ohio, Duluth News Tribune in Minnesota, Lexington Herald-Leader in Kentucky, and Grand Forks Herald in North Dakota.

Mr. Jackson said he thought the offer to buy those papers would complement the expressed interest of other companies in Knight Ridder's electronic services such as the CareerBuilder employment Web site and its smaller, higher-profit newspapers.

The sale process has been disruptive locally in some unexpected ways. The founding co-publishers of the Palo Alto Daily News, which now publishes six free daily editions on the Peninsula and in the East Bay, are stepping down. David Price and Jim Pavelich are leaving to explore other opportunities.

"With the process Knight Ridder is in, looking at strategic options, we are not looking to expand the Daily News group into new markets," Mr. Laffoon said, "Price and Pavelich -- one of their main goals was to do that, and that's not an option anymore."