Ending a months-long auction, McClatchy ( MNI) agreed to acquire Knight-Ridder ( KRI) Monday for cash and stock worth about $4.51 billion, plus assumed debt. The deal, which will create the second largest newspaper publisher in the U.S., values Knight-Ridder shares at $67.25 apiece, consisting of $40 in cash and 0.5118 of a McClatchy share. The companies say the deal is worth $6.5 billion when debt is included. Knight-Ridder closed Friday at $64.25. After the merger, McClatchy -- after selling 12 Knight-Ridder newspapers -- will have 32 daily papers and roughly 50 non-dailies, with a combined daily circulation of about 3.2 million. Pro forma 2005 revenue for the combined assets were $2.83 billion, and combined pro forma EBITDA was $754 million. The transaction is expected to boost free cash flow, which McClatchy defines as net income after adding back depreciation and amortization, minus capital expenditures, by a percentage in the midteens and be dilutive to GAAP earnings per share by a percentage the midsingle-digit range in the first year after closing. The transaction will start adding to EPS accretive by 2008. "Opportunities like this come perhaps once in a company's lifetime, and we're thrilled to have this chance to extend McClatchy journalism and our proven newspaper operations to 20 high-quality newspapers in high-growth markets," McClatchy said. "Our two companies operate in the finest traditions of American journalism, devoted to independent, public interest reporting and the highest ethical values. Combining the two creates a company particularly well-positioned to lead the way in a changing media landscape. It's truly a chance for McClatchy to do more of what it does best." McClatchy closed at $53.24 Friday.