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Saturday, November 10, 2007 - Page updated at 12:00 AM

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McClatchy drops estimated value of stake in Times

Seattle Times staff reporter

The McClatchy Co. has reduced the estimated value of its minority stake in The Seattle Times Co. to $19.1 million, an 80 percent drop from what it calculated the investment was worth less than a year ago.

The Sacramento-based company's write-down of the carrying value of its 49.5 percent Times stake was part of $1.52 billion in write-downs and noncash "impairment charges" the company reported in a filing Thursday with the Securities and Exchange Commission.

It said the drops reflected "challenging business conditions" in the newspaper industry and a drop in McClatchy's share price.

McClatchy had valued its interest in The Seattle Times Co. at $102.2 million last Dec. 31 and $89.9 million in late June.

"This is a big write-down," said Frank Hodge, a University of Washington accounting professor who specializes in financial-statement analysis. "They [McClatchy] now feel this investment isn't worth nearly as much as they thought it was worth before."

In the SEC filing, McClatchy said it had reviewed its investments in "unconsolidated companies," including The Times, as of Sept. 30, and determined that the drop in value of The Times and a newsprint company, "which are other than temporary declines, should be recognized."

A McClatchy spokeswoman would not comment on the recalculation.

The family-controlled Blethen Corp. owns the other 50.5 percent of the privately held Times Co. The Times publishes its namesake paper and five other dailies in Yakima, Walla Walla and Maine.

Publicly traded McClatchy, the nation's third-largest newspaper company, publishes 32 dailies.

Times spokeswoman Jill Mackie said Times officials weren't involved in McClatchy's reappraisal and know nothing about the methodology. "There really is not that much to say, since this wasn't an action taken by The Seattle Times," she said.

Carrying value isn't synonymous with market value. And the value of the Blethens' controlling 50.5 percent may be significantly greater than McClatchy's 49.5 percent. The holdings are structured in such a way as to give the minority owner little say in Times operations.

Still, the McClatchy filing indicates The Times, like other newspapers, has dropped significantly in value in recent years. Its advertising revenues have slipped. Its circulation increased slightly this year after several years of declines.

Knight Ridder, which was the longtime owner of the 49.5 percent interest in The Times, offered the Blethens $500 million, plus $200 million in assumed debt, for their 50.5 percent as recently as 2000, shortly before the industry took a nose-dive.

McClatchy acquired the minority interest when it bought Knight Ridder last year.

Earlier this year, The Times settled a long-running legal dispute with The Hearst Corp., publisher of the smaller Seattle Post-Intelligencer and its partner in a joint operating agreement (JOA). Among other things, The Times agreed to pay Hearst $24 million, take steps to improve P-I circulation, and not move to end the JOA — which Hearst has said would kill the P-I — until at least 2016.

The settlement might have been a factor in McClatchy's write-down of its investment in The Times, said John Morton, a newspaper consultant in Silver Spring, Md.

"That's a financial obligation they didn't have before," he said of the $24 million payment, which The Times completed in August and has acknowledged it had to borrow money to pay. Morton said he found the size of McClatchy's Times write-down surprising: "I would have expected 50 or 60 percent."

Overall, however, he said McClatchy's reappraisal of the value of its own newspapers, as well as it stake in The Times, "is a recognition that certain newspapers — especially larger ones — have dropped dramatically in value over the past five years."

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

Copyright © 2007 The Seattle Times Company

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