This excerpt taken from the MNI 10-Q filed Jul 27, 2006.
Acquisition of Knight-Ridder, Inc. (Knight Ridder)
On June 27, 2006, (the second day of the Companys fiscal third quarter), the Company completed the purchase of Knight Ridder pursuant to a definitive merger agreement entered into on March 12, 2006, under which the Company paid Knight Ridder shareholders a per share price consisting of $40.00 in cash and a fixed fraction of .5118 of a Class A McClatchy share. The Company issued approximately 35.0 million Class A common stock shares in connection with the acquisition. The purchase price was approximately $4.6 billion based upon the Companys average stock price around the time of the transaction announcement. In addition, the Company assumed $2.0 billion in debt at closing.
Knight Ridder published 32 daily newspapers in 29 U.S. markets, with a circulation total of 3.4 million daily and 4.5 million Sunday, operated websites in all of its markets and owned a variety of investments which consists of: Internet investments: one-third of CareerBuilder and
Shoplocal, 25% of Topix.net, 21.5% of Classified Ventures, 31% of CityXpress and 19% of Tribe; Newsprint investments: one-third interest in SP Newsprint Company and a 13.5% interest in the Ponderay Newsprint Company; and other investments: 28.9% of Newspapers First and 49.5% of the Seattle Times Company (The Seattle Times Company owns The Seattle Times newspaper and weekly newspapers in Puget Sound, and daily newspapers located in Walla Walla and Yakima, Washington and in Portland, Maine). Knight Ridder was the founder and operator of Real Cities (www.RealCities.com), the largest national network of city and regional websites operating in more than 110 U.S. markets.
In conjunction with the transaction, the Company announced its intention to divest 12 Knight Ridder newspapers, mainly located in cities that do not fit the Companys longstanding acquisition criteria, chiefly involving growing markets. The largest are the Philadelphia Inquirer and San Jose Mercury News. Others include Knight Ridders other Philadelphia paper, the Daily News; Akron Beacon Journal (OH); Wilkes Barre Times Leader (PA); Aberdeen American News (SD); Grand Forks Herald (ND); Ft. Wayne News-Sentinel (IN); Contra Costa Times (CA); Monterey Herald (CA); and Duluth News Tribune (MN). The St. Paul Pioneer Press (MN) is to be sold due to antitrust concerns involving McClatchys ownership of the Star Tribune (MN).
Four of the divestitures were completed on June 27, 2006 and the Company completed the sale of the two Philadelphia newspapers on June 29, 2006. Six other newspapers sales are pending: the Akron Beacon Journal (OH) and Wilkes-Barre Times Leader (PA) are expected to be completed in late July or early August; and a four-paper sale to MediaNews Group and Hearst Corp., involving the San Jose Mercury News, Contra Costa Times and Monterey Herald in California and the St. Paul Pioneer Press (MN), is being reviewed by the United States Department of Justice. McClatchy is responding actively to assist that inquiry and is working to close the MediaNews/Hearst transaction as quickly as possible. Net proceeds from the divestitures will be used to reduce debt.
Upon completion of the remaining divestitures, McClatchy will operate 32 daily newspapers and approximately 50 non-dailies. Papers added through this transaction include, among others, the Miami Herald, Kansas City Star, Fort Worth Star-Telegram and Charlotte Observer. They will join McClatchys 12 papers serving cities including Minneapolis, MN; Sacramento, CA; and Raleigh, NC. In addition, McClatchy combined with Knight Ridder has an expanded network of valuable internet assets, including leading local websites in each of its daily newspaper markets, offering readers information, comprehensive news, advertising, e-commerce and other services. The Company also owns and operates McClatchy Interactive, an interactive operation that provides websites with content, publishing tools and software development and Real Cities (www.RealCities.com), the largest national network of city and regional websites operating in more than 110 U.S. markets.
On June 27, 2006, McClatchy borrowed $3.076 billion under a new $3.2 billion senior unsecured bank debt facility (see discussion below), and used the proceeds from the sales of four Knight Ridder newspapers ($255.6 million) in order to pay Knight Ridder shareholders ($2.7 billion) and refinance its and Knight Ridders bank debt ($492.0 million). Total debt on the closing date was $4.676 billion, including $1.6 billion in publicly traded bonds assumed in the transaction.
The Companys new bank debt was underwritten and subsequently syndicated by Bank of America, N.A. and JPMorgan Chase Bank, N.A. The facility consists of a $1 billion five-year revolving credit facility and a $2.2 billion five-year Term A loan. Both the Term A loan and the revolver are due at the end of the five-year period with no required amortization during the term.
Standard and Poors has rated the facilities BBB and Moodys has rated the facility Ba1. Under the structure of the facilities, the Company will pay interest at London Interbank Offered Rate (LIBOR) plus 75.0 basis points on outstanding debt.