Knight Ridder's Problem With Democracy

Oh boy. The adventure to sell Knight Ridder (NYSE: KRI  ) has suddenly become a crusade. Witness this well-written missive from columnist Jill Porter of the Philadelphia Daily News. Go ahead; click the link. I'll wait for you to come back. (Tapping feet.) Ah, there you are. A lucid argument, right? For the most part, yes. Journalists are our public watchdogs. An independent press is important. Hooray for democracy!

Sort of. Porter goes on to skewer financial analysts and investor Private Capital Management for demanding that the company -- her company, for Knight Ridder owns the Philadelphia Daily News -- be sold. The argument -- to put it kindly -- is that investors are greedy and that they needn't be.

Knight Ridder chairman Tony Ridder seems to agree. In an interview with the Associated Press, he lamented that PCM was targeting his firm because "... We have a single class of stock, meaning that exceptional voting rights are not reserved for the founding families. In Knight Ridder, all shareholders have the same rights."

Get real. Or at least take a look at the latest numbers. Knight Ridder keeps finding ways to make less and less money. Which is probably why it has proved to be a poor investment. What other recourse do shareholders have than to agitate for a sale?

Or maybe that's the wrong question. Maybe it would be more useful to put this in a broader context. What happens if corporate America as a group decides that it wants to eliminate the voting rights of common shareholders? Firms could simply issue founders' stock and give voting rights to only those shares, as Ridder intimates. This is by no means illegal, and it is practiced at many institutions. Just not the ones in which I invest. The reason is simple: Such a structure virtually eliminates checks and balances.

Shareholders with voting rights have the power, in some cases, to prevent less than favorable outcomes from occurring. For example, several of my colleagues are front and center in helping Quality Systems (Nasdaq: QSII  ) owners demand fair practices in management compensation and governance. A battle inside the board still rages.

We also had front-row seats when FlamelTechnologies (Nasdaq: FLML  ) tossed its CEO and the rest of the incumbent board for incompetence. While difficult, this was a good, necessary outcome. That's capitalism, but it's also democracy.

Were Knight Ridder to be sold, there likely would be tragic consequences for reporters who deserve better. But protecting them shouldn't come at a cost to shareholders either. There is another, better answer, Mr. Ridder. And I think you know what it is: Line up the money to take your company private.

By leaving the public markets, you'll remove the short-term pressure to deliver profits that at times conflicts with the greater public interest that you and your staff propose to serve. So, go ahead, go private: We won't blame you. But if you choose not to, stop whining. According to the most recent proxy filing, you beneficially own more than 669,000 shares and 774,000 exercisable options. More than 900,000 of those stubs are owned outright by you or in tandem with your wife. That means a purchase of Knight Ridder for, say, $70 per share could transform your ownership interest into a $63 million payday. You don't really expect us to believe that you'd be upset by that -- do you?

Exercise your right to related Foolishness:

  • Gannett (NYSE: GCI  ) has been mentioned as a possible suitor for Knight Ridder. But is its stock a value?
  • Newspapers really are black, white, and red all over.
  • Will the struggles ever end for New York Times (NYSE: NYT  ) ?

Flamelis aMotley Fool Hidden Gemspick. Quality Systems is aMotley Fool Stock Advisorpick. Take a risk-free trial to any of our investing newsletters today. All you have to lose is the prospect of better returns.

Fools, now is the time to open your hearts and wallets to worthy causes! Please support our five Foolish charities at www.foolanthropy.com.

Fool contributor Tim Beyers doesn't relish sticking it to anyone in the newspaper business, having been there himself many years ago. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.


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