Quiet investor shifts to limelight

Sherman's urging newspaper chain's sale causes stir in industry

November 04, 2005|By LAURA SMITHERMAN | LAURA SMITHERMAN,SUN REPORTER

Money man Bruce S. Sherman first got turned onto stocks when his father bought him a few shares of Polaroid for his bar mitzvah. He watched the stock have an extraordinary run over the next eight years, then sold it the day his father handed over ownership.

"My father asked why? ... I said I read the annual report," Sherman told an interviewer for Investment Gurus, a book that profiled Sherman and other Wall Street luminaries, such as Mario Gabelli and Peter Lynch.

Reading financial documents would become a lifelong passion for Sherman. In that interview, he admitted that he enjoys reading annual reports in the Jacuzzi.

Sherman has spent his career making a fortune, quietly and deliberately, for wealthy families and other investors at his firm Private Capital Management, a Naples, Fla., subsidiary of Baltimore's Legg Mason Inc. This week, however, Sherman thrust himself into the limelight by agitating for newspaper publisher Knight Ridder Inc., in which PCM holds a 19 percent stake, to put itself up for sale.

Yesterday, two other major Knight Ridder investors, Harris Associates LP and Southeastern Asset Management, joined Sherman in wanting to discuss the company's options. Harris and Southeastern own a total of 17 percent of the company. The prospect of a sale has caused a stir in a newspaper industry struggling with declining circulation and advertising, as industry insiders fear a sale could mean layoffs or a diminished quality of journalism.

Sherman and his partner, Gregg J. Powers, declined to be interviewed. "They're being particularly reticent," Private Capital general counsel Chad Atkins said. "It's their habit."

For Sherman, his move on Knight Ridder applies the lessons he learned with Polaroid, which he figured was overpriced after analyzing the company's cash flow compared to its stock price. In contrast, Knight Ridder's cash flow is strong but the stock has fallen. Sherman, in a letter to the board, concluded the "breakup value" of the company exceeds the stock price.

The move also reflects his interest in newspapers since early in his career, when he served on the board of directors of the Naples Daily News - owned by his employer at the time, Florida's wealthy Collier family. When the family split and decided to divide its empire, reportedly over a coin toss, because descendant Miles Collier wanted to invest more aggressively, Sherman helped engineer the sale of the Daily News to Scripps Howard for a reported $170 million, or nine times the revenue it generated.

Miles Collier and Sherman founded Private Capital in Naples around the same time, in the mid-1980s. Now Private Capital ranks as one of the largest shareholders in many of the nation's biggest newspaper chains, including Gannett Co., the New York Times Co. and McClatchy Co.

An investment business started with about $50 million has grown to $30 billion in assets that the firm manages for clients, who must bring at least $2.5 million to open an account. Legg Mason agreed to buy Private Capital four years ago for as much as $1.4 billion and has since let the company virtually run itself, as is Legg's style with acquisitions.

Though he has emerged as a major force in investing, Sherman has picked only a handful of fights. Most recently, as the largest shareholder in Banknorth Group Inc., he objected to the company's agreement last year to sell to TD Bank Financial Group, which eventually went through.

"He's very supportive but not an activist; he's been quiet," said Elaine Lintecum, a McClatchy spokeswoman. Tara Connell, a vice president at Gannett, said the company communicates with Sherman regularly, just as it would any other major investor.

From a working-class neighborhood in Queens, Sherman got his start as an accountant at Arthur Young & Co., where he has said he learned firsthand how companies manipulate their financials. He earned an accounting degree from the University of Rhode Island and an MBA from the night school at Bernard Baruch College.

Then he got a call from a headhunter looking for a chief financial officer. He was 29. The client was the Collier family, which made hundreds of millions of dollars in real estate and from streetcar advertising in the early 1900s. A county in Florida, where the family owned more than a million acres, was dubbed Collier County after them.

"He was a very thoughtful, astute, extremely competent business person," said Corbin A. Wyant, former publisher and president of the Naples Daily News. Wyant said Sherman has "deliberately kept a low and modest profile."

"I don't think he's out to impress anybody in Naples," Wyant said. "He's out to deliver results for his clients, and he's benefited many investors in Naples and beyond."

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