JimmyCsays: At the juncture of journalism and daily life in KC

It appears the proposed merger between Gannett and GateHouse Media, the two largest newspaper chains in the country, will be accomplished by year’s end.

If that happens, New Gannett would have more than 260 daily papers and more than 300 weeklies.

The antitrust division of the Department of Justice has approved the deal, and shareholders of the two companies are expected to approve the merger next month. Closing on the $1.4 billion deal could follow within days.

The new company would own about one of every six U.S. daily papers and would have a combined print circulation of about 8.7 million — about five times more than the new No. 2 chain, McClatchy, which owns The Kansas City Star.

“Never before in U.S. history have we seen a single company own and manage so much of the American newspaper business,” said Ken Doctor, the foremost authority on the newspaper industry.

Ken Doctor

In the wake of the merger, Doctor foresees much more consolidation in the industry, with several chains — including Tribune Publishing, Lee Enterprises, MNG Enterprises (formerly MediaNews Group) and, of course, McClatchy — in play.

So where might McClatchy and its other papers, including the Miami Herald, the Fort Worth Star-Telegram and The Sacramento Bee, end up?

Last year, McClatchy, which has 29 daily papers, made an unsuccessful run at Tribune Publishing, which owns such papers as the Chicago Tribune, the Baltimore Sun and the Hartford Courant.

Doctor believes McClatchy and Tribune will attempt to “dance anew,” but I’m not so sure about that. It never made any sense to me that McClatchy was the suitor. For one thing, it carries a hangover $745-million debt from its ill-fated acquisition of Knight Ridder in 2006, while Tribune is debt free. For another, its stock price has continued to slide, to the point that it is now in jeopardy of being de-listed from the New York Stock Exchange.

Whatever happens and wherever McClatchy ends up, the prospects for an improved Kansas City Star don’t look good. At least three of the chains in play for consolidation are indebted to or in the grasp of hedge funds. In the case of McClatchy, it’s Chatham Asset Management, which owns at least 20 percent of McClatchy. With Lee Enterprises, which owns the St. Louis Post-Dispatch, it’s Cannell Capital. And MNG, which owns the Denver Post, it’s Alden Global Capital.

The hedge funds have closed in because as bad as things are for most chains, they are still generating lots of revenue. Cash is the lifeblood of the hedge funds, and what they’re doing, generally, is looking to bleed the newspapers of revenue and reinvest it in other, more profitable ventures. For example, The Columbia Journalism Review reported that a group of Alden shareholders filed suit last year alleging that Alden “had sucked money out of the newspapers it owns in order to make risky investments in Greek sovereign debt and a troubled pharmaceutical chain, among other areas.”

The hedge funds’ strategy has a euphemistic name, “harvesting market position,” but what it really amounts to is gutting an industry with a failing pulse.

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Unfortunately, I don’t see any promising outcome on the horizon for McClatchy and The Star. McClatchy is not going to sell The Star, probably its most profitable paper, so The Star is probably going to be owned by another chain within a year or two.

The worst possible outcome would be that it ends up in the hands of MNG, that is, Alden Global Capital. Before GateHouse came along, Alden made a run at Gannett, but Gannett was strong enough to fight off the hostile takeover bid. Alden probably would be less deterred by McClatchy’s $745 million debt than some of the other chains because Alden is more interested in what’s coming than what is owed.

Among other papers, MNG — Alden — owns the Denver Post, the St. Paul Pioneer Press and the Detroit News.

Here’s what it looked like last year at The Denver Post after 30 newsroom layoffs were announced…

You KC Star editorial employees who are reading this blog, take a good look at this image. I truly hope a scene like this doesn’t materialize in Kansas City, but if Alden should get its hands on McClatchy, there could be lots of tears on the keyboards.