McClatchy sheds another union paper -- Coincidence?

by Mark Fitzgerald , Editor and Publisher

When The McClatchy Co. immediately put up for sale the dozen so-called "orphans" from the 32 dailies acquired in the blockbuster Knight Ridder Inc. deal, it did not escape The Newspaper Guild's attention that the move neatly culled all but one of the former KR newspapers that had union newsrooms.

Now, the Star Tribune of Minneapolis -- where the Guild represents nearly all newsroom employees plus artists in the ad department and circulation district sales managers -- will be leaving McClatchy as well, sold for a big loss to a private equity firm in order to get some quick cash and mitigate the tax hit coming on the sale of the orphans.

What does the Guild make of that?

"I can't honestly say what factor [the Guild presence] played" in the deal, said Darren Carroll, executive director for the Minnesota Newspaper Guild Typographical Union. "Obviously, it was observed that in the divestiture of the 12 former Knight Ridder papers that all but one of the properties where the Guild had representation ... were divested. In this case [of the Star Tribune], obviously the Guild has a large representation, as do other unions."

The one former paper with a Guild newsroom that McClatchy kept was the Lexington (Ky.) Herald-Leader.

The Star Tribune sale was as much a shock to local Guild leaders as anyone in the newsroom, said local President Amy Wilhelmy, the TV Week copy/layout leader at the newspaper.

McClatchy says the paper's labor situation was not a significant factor in determining to sell to private equity firm Avista Capital Partners for $530 million in cash. McClatchy, which bought the paper for $1.2 billion in 1998 said the loss on the sale would draw down its tax bill on the sale of the orphans by $160 million over the next two years.

"They looked at all factors, but [labor] certainly wasn't driving the decision to sell," said Sarah Lubman of the New York City public relations firm The Brunswick Group. The key reason was the tax advantage "unique to the Star Tribune" among its portfolio of papers, she said. "What's driving this decision is really financial: the ability to reduce debt, the tax benefit, and the ability it gives McClatchy to be flexible in looking at other opportunities," Lubman added.

But the union situation likely influenced McClatchy, says one observer, Michael D. Lindsey of the Cheyenne, Wyo.-based Media Consultants Inc. newspaper brokers firm.

"It kind of looks like McClatchy is cutting and running on its big Midwestern property," Lindsey said. "Maybe they're looking down the road with their union problems."

For the Guild, the good news is that the sales is structured so that new owners Avista will honor the contract that runs until July 2008. Other bargaining agreements end earlier, some as soon as next June, the Guild's Carroll said.

The union factor is just one of the questions in what is a puzzling transaction -- a rare instance of a chain selling off its largest paper, notes Larry Grimes, President of the Gaithersburg, Md.-based newspaper mergers and acquisitions firm W.B. Grimes & Co.

"They're claiming they have sold it for the same multiple that they sold their other papers. That would mean about 11 times (EBITDA)," Grimes said. "Of course, I have no idea how then they justify what they paid for it a few years ago. Why did it fit so beautifully eight years ago, and why does it not fit now?"

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