Denver-based ap Inc. announced today a $1 billion cash deal to acquire three newspapers in California and one in Minnesota from McClatchy Co., the Sacramento, Calif., a move that makes MediaNews the nation’s fourth largest newspaper chain.
MediaNews also left the door open to pursue any of eight other papers still up for sale by McClatchy.
“Anything’s possible,” said Jody Lodovic, president of privately-held MediaNews.
MediaNews, previously the nation’s seventh largest newspaper publisher and owner of The Denver Post, will acquire the San Jose Mercury News and the Contra Costa Times from McClatchy.
In a separate deal, New York-based Hearst Corp. will acquire two other papers: the Monterey Herald in northern California and the St. Paul Pioneer Press in Minnesota. Hearst will then swap those two papers for an equity stake in MediaNews’ assets outside the San Fransisco Bay area.
The $1 billion figure encompasses the entire deal; individual dollar values of the newspapers were not disclosed.
Gannett Co., the nation’s No. 1 newspaper publisher, and Stephens Media, based in Las Vegas, also contributed financing because of pre-existing partnerships with MediaNews.
Lodovic said the deal’s structure helps ease anti-trust concerns. If the deal fails to pass regulatory muster, MediaNews would purchase the two papers from Hearst directly, Lodovic said.
Hearst owns the San Francisco Chronicle. MediaNews controls much of the newspaper market in the San Francisco Bay area and a Hearst stake in MediaNews would trigger anti-trust concerns.
The three-way deal is expected to close by mid-summer and requires regulatory review.
At the deal’s closing, MediaNews would have a daily circulation of 2.7 million and a Sunday circulation of 3.0 million – with 53 newspapers nationwide, the company said.
The four papers are being sold by publicly-traded McClatchy, which agreed to acquire 32 papers last month from Knight Ridder Inc. of San Jose, Calif. After agreeing to that deal, McClatchy said it would sell 12 papers that did not mesh with its strategy.
Lodovic called the four papers “by far the best assets” that McClatchy had up for bid.”
“We are delighted to acquire these fine newspapers and expand our reach in California as well as enter a new and growing market in St. Paul,” William Dean Singleton, MediaNews vice chairman and chief executive, said in a statement.
Larry Grimes, president of W.B. Grimes, a media investment bank in Gaithersburg, Md., described the purchase “as a logical move” for MediaNews.
“It’s a great add on for them,” Grimes said. “It strengthens their position in California.”
Before the deal, MediaNews owned 22 papers in California.
MediaNews paid 11.5 times 2005 EBITDA – a measure of cash flow that calculates earnings before interest, taxes, depreciation and amortization.
In its deal with Knight Ridder, McClatchy paid 9.5 times 2005 EBITDA. Based on that, Grimes said “it looks like a good deal” for McClatchy.
“That spread pays of a lot of debt for McClatchy,” he said.
Lodovic said comparing the two valuations “is like comparing apples to oranges.” He said McClatchy had to pay a hefty bill in its deal with Knight Ridder. He said MediaNews’ tax bill will be substantially less.
Staff writer Will Shanley can be reached at 303-820-1260 or wshanley@denverpost.com
