Worth the Paper It Prints on?

What's an ailing newspaper chain worth? We may soon find out.

Word is that Knight Ridder (NYSE: KRI) will spend the weekend pondering the offers that have come in as a result of its well-known self-auction. The firm, whose shares were struggling for years, put itself on the auction block months ago at the behest of a mega shareholder, Private Capital Management, a subsidiary of Legg Mason (NYSE: LM).

Everyone's being as hush-hush as possible about the big deal, but the reports are that newsie Gannett (NYSE: GCI) came up with an offer, as well as McClatchy (NYSE: MNI). As is usual in these days of easy credit and scarce undervalued assets, there's some private money chasing the game as well. Current offers rolling in seem to peg the value at $4.7 billion or so, which would mean about $65 per share (the share price was around $64.50 at the time of publication).

And that's the whole problem with these shares. Like my colleague (and fellow invest-where-the-Street-ain't cheapskate) Stephen Simpson, I never found Knight Ridder shares to be particularly attractive, at least not after the whole "strategic alternatives" thing popped the shares out of panic-cheap range. Looking at Knight Ridder's recent results, applying a reasonable discount rate, and projecting a conservative growth rate, $65 a share looks at least 10% too generous to me.

But then, almost every newspaper I check in with (and I do this pretty often) looks overpriced. I see similarly overpriced shares at McClatchy and Tribune Company (NYSE: TRB), to say nothing of the more richly valued Washington Post (NYSE: WPO) and New York Times (NYSE: NYT). If I owned any of these, I'd take what the market was offering and skeedaddle. Only Gannett looks reasonably cheap to me, and that's only if it continues buying back loads of shares.

Newspapers aren't dead, but neither are they weathering the information and advertising revolution very well. While consumers expect to get their news for free, they direct more and more of their ad dollars to Internet advertising. That means we've probably got a long, cold season ahead for traditional media firms. That doesn't mean don't buy, but it does mean be extra careful. The lesson here is one for the ages. Buy the behemoth slowpokes only when they're priced for the dirtnap. Otherwise, look elsewhere.

For related Foolishness:

• Knight Ridder Stays Out of the Obituaries
• The End of Knight Ridder?

Seth Jayson worked at newspapers for years, so he knows the score. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.