The reverberations of McClatchy's "what were they thinking?" acquisition of Knight Ridder continue: For the second quarter in a row, McClatchy has been forced to take a writedown of nearly $1.4 billion in goodwill because of the declining value of the Knight Ridder assets McClatchy acquired.
"Goodwill" is a somewhat arcane accounting term, but the simple explanation is that it reflects the value of an acquired company above the book value of its assets, and companies are forced to write it down on their balance sheet when the company they acquired drops sharply in value. (Using an even more obscure accounting term, McClatchy calls the writedown "impairment charges." Ouch.) In other words, McClatchy has now had to take nearly $2.8 billion in goodwill writedowns on an acquisition that cost it $4 billion in the first place.
Or, here's another way to look at it, albeit in a slightly apples and oranges manner: The total market value of McClatchy stock these days is just a bit over $800 million. For the whole company. That's less than one-third of the past two quarters' writedowns. If McClatchy has to keep writing down goodwill, the whole shebang might just wind up at Goodwill.
I had the great pleasure of meeting Mr. Gary Pruitt not long ago.
We discussed the Knight-Ridder deal. I started to say, "I like the Knight-Ridder deal, and assuming -- " he cut me off -- "assuming viability," he said, "Right," I said, "assuming viability, it's going to turn out to be a great deal for McClatchy."
The deal doesn't look good now, and it may not look for a long time, but assuming media companies such as McClatchy survive, assuming McClatchy survives the current turmoil, and there is some sort of recovery that comes along -- Knight-Ridder is going to have turned out to be a hell of a deal for McClatchy. McClatchy is in some great markets, and the deal helped improve that standing.
It probably would have helped, though, if they had dumped the Miami Herald.
Posted by: Howard Owens | March 02, 2008 at 06:57 PM