Activist who set sale in motion is a bit surprised


When investment consultant Peter J. Tanous visited longtime acquaintance Bruce S. Sherman last month, he found the Florida investor surprised by the attention he was receiving as the instigator behind the newspaper industry's shake-up and Knight-Ridder's sale.

"He's been a activist for more than 20 years," said Tanous, president of Lynx Investment Advisory Inc. who has advised clients to invest with Sherman. "He said, `You know Peter, when I was doing this years ago, nobody paid any attention, and now that I'm doing it with bigger companies, everybody is paying attention.' "

Sherman's agitation led to the announcement yesterday of the sale of Knight Ridder Inc. to McClatchy Co. It occurred at a time when shareholder activists of all stripes are getting a lot more attention.

Billionaire Kirk Kerkorian, a veteran agitator, secured a board seat for his lieutenant this year at General Motors Corp., after the activist criticized the automaker's turnaround efforts. Newer entrants to the club include hedge funds such as William Ackman's Pershing Square Capital Management, which recently made waves at McDonald's Corp. in a bid to boost the stock.

Corporate governance experts say the recent activism signals an end to the super-CEO era and the rise of shareholder power.

Charles M. Elson, director of the University of Delaware's center for corporate governance, said investors develop expertise in certain industries and offer alternative viewpoints to company management. The result is more creativity and greater accountability, he said.

"This is a transition to a much more balanced approach between management and shareholders," Elson said. "People realized that taking a large stake and agitating for change can actually make a difference, and I think you're going to see a lot more of it. There are plenty of companies out there that have issues."

Critics say activist investors too often are narrowly focused on share price. "To the investor community, greed is good," said Edward J. Atorino, a media analyst at Benchmark Co. "The end game for Wall Street is the stock price and not anything else."

Less than six months ago, Knight Ridder's stock wasn't worth what Sherman paid for it. The falling stock price prompted Sherman, who runs Private Capital Management, a subsidiary of Baltimore's Legg Mason Inc., to suggest that management "aggressively" pursue a sale. Sherman had two other big shareholders on his side. Together they controlled more than a third of the company, enough to stage a boardroom coup.

The shares were trading at less than $55 before talk of a sale led to a rally as investors anticipated that a suitor would pay a premium for the stock. The McClatchy offer values Knight Ridder at $67.25 a share in cash and stock, based on Friday's closing price.

Sherman's Private Capital owns 12 million shares purchased for an average of $65.53. The deal delivers Sherman a profit, albeit a slim one for someone of his magnitude, of about $21 million.

So the gambit worked. It worked so well that Wall Street watchers are wondering about Sherman's next move in the newspaper industry and beyond. As for Sherman, he's not talking.

Sherman, who rarely grants interviews, manages nearly $30 billion for wealthy families and other investors from his firm in Naples, Fla. He often takes ownership stakes of more than 10 percent in publicly traded companies, but he has picked few public fights at large corporations.

In a recent letter to shareholders, Sherman indicated some reluctance to undertake corporate challenges.

"We are first and foremost patient, long-term oriented investors and undertake corporate governance actions with reticence and only after careful consideration," he wrote in the letter co-authored with Gregg J. Powers, company president and co-portfolio manager.

Sherman might find a limited number of companies where he could push for change.

In the newspaper industry, he holds major stakes in the New York Times Co., Gannett Co., Lee Enterprises, Belo Corp. and in McClatchy. But McClatchy - and several of the other chains - are controlled by families who own separate classes of stock that give them most of the voting power.

"This may be a unique situation to Knight Ridder," said Atorino, the media analyst. Sherman "has no say in what goes on in McClatchy, so he could make all the noise he wants, and they don't have to answer the phone."

In the technology industry, where Sherman holds stakes in Computer Associates International Inc., Microsoft Corp. and Symantec Corp., there has been some consolidation, said Walter Pritchard, an analyst at SG Cowen & Co. Those acquisitions have been driven more by the desire to appease customers who want one-stop shopping for software and less by shareholder demands for higher profits and stock prices, Pritchard said.

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