So Bruce Sherman's out of the game. Failure apparently has its price, eventually.
You remember Bruce, the anonymous-to-newspaper-people fund manager. He's the guy who pulled the plug on the newspaper industry's sense of normalcy, setting off a chain reaction of events that remain with us to this day.
As co-founder of Private Capital Management (PCM Management), a Naples-based division of Legg Mason, Sherman took a long look at Knight-Ridder in 2005, and didn't like what he saw. He thought management could be managing better. He let Tony Ridder know that, but didn't see the changes he wanted. So he said: I think we could do better. I think we should sell the company.
Amazingly, Tony Ridder blinked, Knight Ridder was sold -- at a price of $67.25 a share (cash and stock), a number that not yet three years later is mind-blowing.
(Check out a good history of "Sherman's March," an AJR story, here.)
That sale -- at 9.5 times KR's 2005 cash flow -- marked the beginning of the end for public newspaper companies. Knight Ridder -- the second-largest newspaper company in the US, with plum properties across the country -- could only find one bidder, McClatchy. McClatchy CEO Gary Pruitt then quickly turned around and sold off a dozen papers, including Bay Area properties to Dean Singleton (iconic photo of the two of them here), but still rues the day he made the KR buy.
Numerous buyers reviewed KR books. They were newspaper companies, private equity and more. All but McClatchy came to the conclusion that the business had serious cracks. Those cracks now have all been exposed as the Tribune tumbled into faux "employee ownership" and then bankruptcy, and company after company have seen for-sale signs unanswered. Today, the San Diego Union-Tribune went, at an undisclosed price, to an L.A. private equity company, after nine months on the market.
When I saw the Sherman announcement, I thought back to the day in November, 2007 when I got an unexpected call from Naples. I answered and heard, "Mr. Sherman's office calling for Ken Doctor." Was it a prank, a lion of private capital calling an independent analyst?
I'd just put up the following post in July:
What Bruce Sherman Hath Wrought: Remember Bruce, whose PCM bought big into newspaper stocks and then embarked on a path to maximize value. He started with Knight Ridder. Unfortunately, when he huffed and puffed, Knight Ridder folded like a house of cards -- and PCM exited without a payoff.
Alan Mutter reports on how PCM has exited much of its newspaper holdings, and quoting Deutsche Bank's Paul Ginocchio to the effect that PCM's stock dumping is a reason that newspaper prices are in the dumper. How much in the dumper? They've lost $15 billion in market value since 2004.
I'm less convinced by that argument than I'd like to be. It seems to me that the three-to-five-year future we can see for print advertising is by far the largest driver of the share decline.
Still, the story of PCM and its outsized impact on the trade is astounding.
Then, in November, when Sherman largely exited his newspaper holdings (which included Gannett (GCI), Media General (MEG), Belo (AHC), The New York Times (NYT), Lee Enterprises (LEE) and McClatchy (MNI)), I'd told reporters that Sherman stayed in newspaper stocks long after it made sense.
Bruce Sherman came on the line. "Is this Ken Doctor?" he said with annoyance. I identified myself.
"Who are you?, he said." I pointed out that he had called me.
"I mean who are you to say I should have sold earlier."
I humbly explained my analytic viewpoint and said that the numbers were the numbers and that the trends had been clear for awhile, so staying in newspaper investments didn't seem to make a lot of sense.
Bruce huffed and puffed about how Knight Ridder -- my old company (I'd retired a year before it was sold) -- had been mismanaged, that it was Tony Ridder's fault that it had been sold, not his. And he said, yeah, maybe he stayed in too long and hadn't brought home good profits on those investments, but he'd done well on many other investments for his clients over the years.
I didn't disagree. It's the last I've talked with him.
In the Wall Street Journal story Wednesday, writer Diya Gullapalli notes that for Sherman, who is retiring, "The past few years have been notable for a series of investing missteps."
Indeed, but that's not the thought going through my mind today. I immediately remembered Jon Stewart's sure-to-become-history interview with Jim Cramer last week. In real outrage, Stewart turned to Cramer and said, "I gotta tell you. I understand that you want to make finance entertaining, but it’s not a f---ing game." Samantha Bee's "The Money Honey Bee" followed up this week with an outrageous interview with a short seller. It's a time of outrage, for the country, for the economy, for newspapers. Cathartic outrage.
For Sherman, it wasn't entertainment, it was just the game of business. Win some, lose some, and see-ya-later. Journalism, though, isn't just a business. Sure, Sherman's pulling of Knight Ridder's -- and the industry's plug -- didn't cause the ensuing implosion. There is plenty of blame to be ladled around for that. It was though a pivotal first step, and for that, we'll always remember him.