Monday's sale of Knight-Ridder ( KRI) did little to lift the gloom hanging over the newspaper business.

Knight-Ridder, the publisher of the Philadelphia Inquirer and Miami Herald, agreed to sell itself to smaller rival McClatchy ( MNI) for $4.5 billion in cash and stock. McClatchy, owner of the Star Tribune in Minneapolis and the Sacramento Bee, made its move after some big Knight-Ridder shareholders demanded action from management.

The acquisition gives McClatchy some big-name newspapers, and the company pledged to make the most of it.

"Pessimism about our industry is widespread," McClatchy Chief Executive Gary Pruitt said on a call announcing the deal. "We believe it is misinformed."

Even so, the price -- and the apparent lack of interest on the part of private equity groups and some big industry rivals -- had some observers in a glum mood. They suggested that the pact is unlikely to create a sweeping consolidation trend like the one that's being predicted for midsize banks . As a result, shares in the newspaper sector were flat to lower Monday afternoon.

"We think the multiple paid is unlikely to produce much cheer for newspaper investors," writes Merrill Lynch analyst Lauren Rich Fine. "The fact that a strategic buyer was interested is good news, but the multiple paid represents a discount to the historical average private multiple of 12-13X and will likely cap multiples in the group for some time unless fundamentals improve." Merrill does and seeks to do business with McClatchy and Knight-Ridder.

Newspapers have been losing advertising dollars to online and broadcast outlets, and the growth slowdown has hammered shares across the sector. A glance at Knight-Ridder shows, however, that in the fourth quarter of 2005 earnings dropped over 10%. For the full year, total ad revenue was up a scant 1.7%.

As a result, a look at some of the newspaper-driven chains shows that the last year has been quite unkind. Over the past year, E.W. Scripps ( SSP) has been the only stock to show growth, and that has come off the success of its niche cable networks. Otherwise, Gannett ( GCI), Knight-Ridder, Belo ( BLC), McClatchy and New York Times ( NYT) all have lost between 10% and 25% of their market value.

There are, however, some bright spots in the acquisition. In Knight-Ridder, McClatchy picks up some properties in significant markets, and will quickly divest itself of assets that don't fit its profile. Pruitt said his company plans to sell 12 of the newspapers, in places such as Philadelphia and San Jose, Calif., but will keep high-end properties like the Miami Herald.

The company also inherits a one-third stake in Career Builder, which is jointly owned by Tribune and Gannett. McClatchy hopes to maintain its stake in the service but the other partners have the right to buy out the McClatchy portion, should they so choose.

Daylight on the Knight-Ridder side of the roster was that its digital revenue was up more than 50% in 2005.

To be certain, news-driven Web sites linked to newspapers are starting to draw significant revenue gains that in some instances threaten to eclipse gains on the print side. Asked about the classified ad revenue landscape, Pruitt said that print classifieds will continue to be a "strong piece" but that online classified revenue is expected to come "pretty close" to print ad levels in the near future.

In some markets, synergies between newspapers and TV stations are seen as a strong advantage. Belo, for example, enjoys such synergies between The Dallas Morning News and TV station WFAA.

On Monday, shares in McClatchy traded down $1.24 to $51.82, while Knight-Ridder dropped 15 cents to $64.85.