By: Michael E. Martinez

Yesterday, on "Merger Monday", it was announced that McClatchy publishing would acquire the newspaper publishing company, Knight Ridder for $4.5 billion in cash and stock. McClatchy will pay $40 cash and 0.5118 shares for each Knight-Ridder share. The deal values Knight Ridder at $67.25 per share, above its closing price of $65 Friday.

The combined company will operate 32 daily newspapers and 50 non dailies after the sale of 12 Knight Ridder papers, including some of its best known titles such as the Philadelphia Inquirer and the San Jose Mercury News. It will rank as the second-largest U.S. newspaper publisher based on a daily circulation of about 3.2 million people. McClatchy said it expected the deal to close within three to four months.

McClatchy said it would retain Knight-Ridder newspapers serving its fastest-growing markets, including the Miami Herald, the Kansas City Star and the Charlotte Observer. The purchase also gives McClatchy a one-third stake in online job site CareerBuilder.com.

The company said it would assume about $2 billion in Knight-Ridder debt at closing and McClatchy will add two Knight Ridder directors to its board. McClatchy said it expected the deal to reduce earnings per share in the mid-single-digit percentage range in the first year after closing, then add to profit by 2008.