The investment firm demanding Knight Ridder put itself up for sale stands to collect a $300 milli... KR investor stands to gain

The investment firm demanding Knight Ridder put itself up for sale stands to collect a $300 million bonus next August if its fund meets certain performance targets, according to a regulatory filing.

The potential windfall was part of a deal made by money manager Bruce Sherman and his partners when they sold Private Capital Management to financial service giant Legg Mason in 2001. Legg Mason, based in Baltimore, paid $682 million in cash at the time of the purchase.

It's unclear whether PCM needs a sale of Knight Ridder to meet those targets or how much such a sale would help Sherman. Knight Ridder owns the Mercury News and 31 other daily newspapers.

PCM received the first of the bonuses for $400 million in August 2004. The second one would be due in August 2006. In a June 2005 filing with the U.S. Securities and Exchange Commission, Legg Mason said PCM was on track to receive its next bonus in full.

``Additionally, if PCM's revenues remain at current levels or increase, we will be required to make the fifth anniversary payment of $300 million,'' according to the annual report.

The performance of PCM's funds has slipped in recent months. Over the past decade, PCM posted annual returns of 21.87 percent to its investors. But for the year ending September 2005, its annual returns had fallen to 10.91 percent -- less than the 12.27 percent return posted by the S&P 500, according to documents posted on PCM's Web site.

Officials at PCM could not be reached for comment Wednesday. A report about the possible $300 million bonus originally appeared in the Wall Street Journal on Wednesday.

In a third-quarter newsletter posted on the PCM Web site, Sherman reported to PCM investors that in the three months ending Sept. 30, their investments ``underperformed the market.'' PCM earns fees for managing its clients' money and growing its total assets.

Over the past five years, Sherman has been loading up on newspaper stocks, which have declined dramatically over the last 18 months. PCM is the largest shareholder of Knight Ridder with 18.9 percent of its stock, and also the largest shareholder in Gannett, the New York Times, Lee Enterprises, Belo and McClatchy.

On Nov. 1, PCM ignited a shareholder revolt by demanding that Knight Ridder put itself up for sale. The company's stock had fallen to $53.07, while analysts estimate the company could be sold for anywhere between $70 to $100 per share.

Knight Ridder said it was exploring options -- including a possible sale -- with its investment banker Goldman Sachs. But Sherman has probably already helped his cause: Knight Ridder stock is up $8.27 since he launched his campaign.

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