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    How the Blethen family lost 49.5 percent of the Seattle Times Co.

    Last week, minority shareholder McClatchy, the Sacramento newspaper chain, said it was willing to sell its not-quite-half slice of the Seattle Times. So how did a locally controlled Northwest newspaper company wind up with a national partner to begin with? The story starts in the 1920s.

    When Gary Pruitt, McClatchy Co.'s chief executive, told shareholders last week that his company was willing to sell a 49.5 percent minority stake in the Seattle Times Co., a McClatchy executive quickly declared Pruitt's announcement wasn't news. McClatchy has been "willing to sell ever since we acquired it," said Elaine Lintecum, McClatchy's treasurer.

    That might be McClatchy's position these days. Publicly and privately, however, Lintecum and other McClatchy officials previously have said the Sacramento-based newspaper chain planned to hold on to the Times stake, which McClatchy picked up as part of a $4.5 billion purchase of Knight Ridder in 2006. "We plan to be a partner," Howard Weaver, McClatchy's vice president for news, told The Seattle Times at the time. "We plan to participate."

    Times change, and since the Knight Ridder acquisition McClatchy has gone from the newspaper industry's power position to a precarious financial bind — its stock has fallen to less than a quarter of its value at the start of 2007. McClatchy's writedown of its Seattle Times Co. stake by 88 percent, from $102.2 million to $12.1 million in the last year, makes the Seattle company the biggest loser in a troubled newspaper portfolio.

    So how did Knight Ridder become the Times Co. minority shareholder, anyway? The official corporate history is somewhat vague about details of the transaction. But two documents — a 2001 Harvard Business School case study on the Seattle Times Co. and the Seattle-area Blethen family, which owns the controlling interest in the company, and a 1946 Washington Supreme Court decision in a legal fight between the Ridder family and the Blethens — provide a detailed account.

    The Harvard study was written by John Davis, a professor, head of Harvard's Families in Business Program, and former advisor to the Blethens, and Cathy Quinn, a Beverly Hills-based psychologist. It is remarkably frank in its assessment of the Blethen history. "They were extraordinarily forthcoming, especially given the sad family history they've had," Davis said in an interview with me in 2003. All the information in the 24-page study was based on documents and interviews with members of the Blethen family, he said, and Seattle Times publisher and Seattle Times Co. CEO Frank Blethen had the final say on what appeared in the report.

    According to the Harvard case study and court documents, Clarance Brettun Blethen, Frank Blethen's grandfather, known as C.B., spent heavily during the second generation of Blethen control of the Times Co., both on the newspaper and on personal luxuries, including a lavish yacht. C.B. often dressed in a military uniform and preferred to be addressed by the his National Guard rank of colonel. He barely skirted bankruptcy by allowing the Ridders, owners of the Journal of Commerce in New York, to invest in the company, accepting $1.5 million from Bernard Ridder, who was tipped off in 1929 to the Seattle company's problems. In return, Ridder got 49.5 percent of the company's voting shares and three-quarters of the dividend-paying shares.

    The deal was rife with intrigue. While Ridder hoped to use his investment to ultimately wrest control of the Seattle Times Co. from the Blethens, state Supreme Court papers indicate that C.B. Blethen schemed to use Ridder's cash infusion to accumulate the rest of his family's shares under his own control.

    "The Ridder investment enabled C.B. to buy out his sisters' voting and common stock," the Harvard study says. The sisters received preferred stock, which was eventually retired.

    "If there is anything clear from these contracts," the state Supreme Court wrote in a decision 17 years later, "it is that Colonel Blethen's unswerving purpose was to maintain his own and (after his death) his family's control of the Seattle Times."

    Meanwhile, the Ridder family "worked to create contention and distrust among the (Blethen) family, (Times) board of directors and bankers," according to the Harvard study. C.B., still on the edge of bankruptcy despite the Ridders' cash infusion, was forced to hand over control of the Seattle Times Co. to the company's attorney, Elmer Todd, who also became the paper's publisher.

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    Posted Wed, May 21, 8:11 a.m. Inappropriate

    Apple Didn't Fall Far From The Tree: Considering the Colonel and the Judge, Frank proves the old adage.

    Posted Wed, May 21, 8:31 a.m. Inappropriate

    Death Spiral: A very well-written and interesting story. The Times is going through a classic paradigm shift that will likely force ownership to shift away from the Blethen family.

    It's a classic business "death spiral" where the company has to cut expenses which causes the product to suffer which causes revenue to drop which forces the company to cut expenses which causes etc. etc. Unfortunately, the current Seattle Times corporate management team has shown no ability to deal with the dilemma and the situation only gets worse as time passes.

    Anyway, very good story

    Posted Wed, May 21, 9:54 a.m. Inappropriate

    A Case Study of Business History: This is the sort of coverage that is essential to a good understanding of how this area works - much better than the typical stuff that gets hyped up as being the true debates and battles of the moment.

    A good example of this is the recent aquisition of the Preston, Gates, Ellis law firm. Perhaps motivated by concerns over the Abramoff scandal this 2006 merger is important to local business and the public issues this firm has, or is, involved in.

    I missed this entirely. True, I wasn't active when it occurred, but it was nearly a year after bringing myself back up to speed that I heard this event referenced, and it wasn't via the media. I also wasn't completely out of touch in 2006 either.

    This was a great article and it would be good to see a similar level of ongoing business coverage as it applies to other industries operating with an influence over the 'public' arena.

    -Douglas Tooley

    Posted Wed, May 21, 10:41 a.m. Inappropriate

    Informative: Fascinating: I'd always wondered how Knight Ridder ended up with nearly half of the Times. Thanks for enlightening us!

    Posted Sun, May 25, 7:06 a.m. Inappropriate

    Crosscut Family: Maybe the Crosscut family and their financial advisors could either purchase or provide financial support to the Seattle Times. We need good newspapers and reporters.

    The Seattle Times isn't very good anymore and has lost their groove. It is more like reading internet news. The lifestyle section has been merged into other sections lately. The Eastside reporting is gone. Their son Ryan Blethen is writing some editorial's. It is like he is holding up the fort.

    The Seattle Times should have started a website like Crosscut in the first place. Kind of odd that the best reporters in town missed that scoop.

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