McClatchy sells Philadelphia newspapers for $562 million

PHILADELPHIA — McClatchy Co. is selling The Philadelphia Inquirer and the Philadelphia Daily News for $562 million to a group of local investors who hope to reverse circulation declines by emphasizing local news and doing more with the Internet.

The two Philadelphia papers are being bought by a group led by advertising executive Brian Tierney and Bruce Toll, co-founder of luxury home builder Toll Brothers Inc. The papers are currently owned by Knight Ridder Inc. and are among 12 that McClatchy doesn't plan to keep once it completes its purchase of the rest of the company.

McClatchy and the investor group said in a statement that they intend to complete the deal around the same time that McClatchy closes its deal for Knight Ridder, which is expected this summer. McClatchy will receive $515 million in cash, and the investment group, Philadelphia Media Holdings, will assume $47 million in pension liabilities.

Once McClatchy closes its purchase of Knight Ridder's remaining 20 papers, it will become the second-largest newspaper company in the country following Gannett Co.

The deal returns the Philadelphia papers to private ownership for the first time since 1969, when Walter H. Annenberg sold the papers to Knight Newspapers Inc. after being named U.S. ambassador to Britain.

''The next great era of Philadelphia journalism begins today with this announcement,'' Tierney said. ''We intend to be long-term owners committed to serving this region with the vigorous, high-quality journalism we all expect of The Philadelphia Inquirer, Daily News and philly.com, and we intend to preserve both papers and their unique and valuable contributions.''

Tierney said the ''plan is to invest in and grow both papers, not allow them to erode.''

The sale of the two papers is part of McClatchy's plan to divest 12 of 32 newspapers it bought from Knight Ridder for about $4.5 billion plus the assumption of $2 billion of debt. Most of the publications being sold were targeted because they don't fit McClatchy's long-standing criteria of buying newspapers in growing markets.

In the six-month period ending in March, the Inquirer's weekday circulation was nearly 350,500, according to the Audit Bureau of Circulations, down 5.1 percent from the like period a year ago.

The Philadelphia papers' combined circulation last September was down 30 percent from its peak in the 1980s, following a national trend. The two papers have struggled to keep up with the new competition in recent years and have faced declining circulation and revenue.

Tierney and Toll said that they want to beef up the Inquirer's local news coverage and Internet presence. The buyers also might start up ad-rich sports and business weeklies, as well as expand downtown coverage to attract real estate advertising.

Philadelphia Daily News columnist Stu Bykofsky said he was pleased the paper would no longer be ''tied to the dictates of Wall Street.''

''That is enormously important because Wall Street has been the poison that has destroyed American journalism by its constant demands to return, say, 25 percent annually on investment, which is a figure that only the Mafia used to get,'' Bykofsky said.

Other bidders for the two Philadelphia papers included Mortimer B. Zuckerman, owner of the New York Daily News; Black Press Group Ltd., a Victoria, Canada-based newspaper publisher; and Yucaipa Cos., an investment firm that is working with a newspaper union.

William Dean Singleton of MediaNews Group Inc. in Denver also was interested.

Bruce Toll, who is making a personal investment not tied to his company, said he was surprised, happy and excited to be a part of the winning bid. He said he grew up reading the papers, but his interest is mainly as an investor: ''This is business. There's some emotion, of course, but it's still business.''

The Inquirer, the nation's 17th largest daily newspaper, has won 17 Pulitzer Prizes while the Daily News has won two.

The Inquirer was founded in 1829 as The Pennsylvania Inquirer by John Norvell and John R. Walker. The Daily News began life as an afternoon tabloid is 1925.

The Inquirer has passed through many hands in its long life. It has been owned by Jesper Harding, a newspaper editor and publisher of Bibles; his son, William W. Harding, who changed the paper's name to The Philadelphia Inquirer; Moses Annenberg, the Hearst Corp. executive and publishing baron; his son, Walter, who bought the Daily News in 1957; and later Knight Newspapers Inc.