Arbs Lay Off Knight-Ridder

"The stock has been trading pretty flat in the last couple of weeks," says an analyst at an investment bank. One explication is that the Street does not anticipate a very competitive bid process given the current advertising environment and the struggles faced by the company to remain competitive. Drewry says that the bidding could become "interesting" if instead of other newspaper companies or private equity firms, an Internet company, such as Yahoo!(YHOO Quote) or Google(GOOG Quote), entered the mix. "But at this stage, the reality of that seems unlikely," says Drewry.

The stock valuation reflects the poor fundamentals of the company, not so much arbitragers pricing in a potential takeover. "I am not comfortable with the fundamentals of the newspaper business. I'm not in the trade. I do not like to bet on takeovers of businesses that are deteriorating," says Jeffrey Cohen, founder of Saddle Brook, N.J.-based hedge fund Silverado Capital Management.

John Janedis, analyst at Bank of America, notes in a research report that October ad growth for the company continued to be soft and marked the lowest level of ad growth since January 2004.

"I might get in but I would have to be convinced of the value," says Havens. "A very convincing value would be an enterprise value of $70," she said. That is a theoretical takeover premium of 17% over the market price.