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

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.

The Ridders focused their efforts to acquire the Times Co. on Clarance Brettun Blethen II, known as "Judge," who was C.B.'s son and Frank Blethen's uncle. While the case study describes Judge as "a fine copy editor," it also calls him "an alcoholic and a womanizer" who "engaged in white-collar crime, which led to prison sentences."

The Blethens disowned Judge, who then filed a series of lawsuits from 1943 to 1946 to regain his inherited shares in the family business. The lawsuits, choreographed and backed by the Ridders, sought to win back Judge's shares, which the Ridders would then purchase from the hapless heir, giving them control of the Seattle Times Co., according to court documents.

The plan was ultimately quashed when the Supreme Court ruled in 1946 in Ridder v. Blethen that Judge Blethen was not entitled to the shares. The Ridders, then shareholders of Knight Ridder, made several subsequent attempts to buy out the Blethens but were also unsuccessful, leaving them with a Seattle Times Co. stake whose worth and influence remain completely under the control of the Blethen family.

Today the Seattle Times Co. is a money-loser. It owns The Seattle Times, the Yakima Herald-Republic, the Walla Walla Union-Bulletin, and, in Maine, the Portland Press-Herald and Sunday Maine Telegram, the Kennebec Journal in Augusta, and the Morning Sentinel in Waterville — plus three weeklies, Web sites including NWsource.com, real estate, and Rotary Offset Press in Kent, Wash. The Maine papers are for sale.

• Bill Richards is a former Wall Street Journal and Washington Post reporter who covered the Seattle newspapers' joint operating agreement for The Seattle Times under a three-year contract that ended in 2005. He also worked for the Seattle Post-Intelligencer in 1990-91. You can e-mail him in care of editor@crosscut.com.