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Hearst Cleared To Buy SF Chronicle

July 28, 2000

SAN FRANCISCO (AP) _ A judge has cleared the way for the Hearst Corp. to unload the San Francisco Examiner and move ahead with its purchase of the rival San Francisco Chronicle, the state’s second-largest newspaper and the 12th largest in the country.

U.S. District Judge Vaughn Walker on Thursday rejected claims the deal would threaten competition, saying antitrust laws would not be broken by Hearst’s $660 million purchase of the Chronicle in a deal that would give the Examiner to a local newspaper mogul, Ted Fang.

The judge also said Clint Reilly, a real estate millionaire who lost his bid for the Examiner and sued to stop the sale, doesn’t have legal standing to sue on claims that the deal violates antitrust laws because he is not an advertiser in the newspapers or a competitor to the publications.

Reilly said he hadn’t decided whether to appeal.

Fang, publisher of Asian Week and the Independent newspaper, agreed to take the Examiner from Hearst for a dollar. He was promised a $66 million subsidy over three years from Hearst.

But the judge has raised doubts about the subsidy designed to keep a Fang-owned Examiner afloat for several more years. Hearst agreed to the Fang deal only after months of pressure from the Justice Department and politicians including Mayor Willie Brown.

Hearst attorney Gary Halling wouldn’t say Thursday whether the media giant will keep its promise.

``We’re studying his decision,″ he said, declining to elaborate. ``We’re not prepared to commit one way or the other on that point.″

Fang attorney David Balabanian said he expects Hearst to honor its deal.

``It is a contract they are obliged to honor. They are bound. This means the Fangs will make good on their promise to keep the Examiner alive and make it a strong and vital force in our city,″ he said.

Hearst representatives told Walker they believed the Fang deal was needed to win government approval for abolishing the joint operating agreement under which the Chronicle and Examiner have split profits equally since 1965.

But Walker ruled that the Chronicle-Hearst accord could go forward even if the Examiner is closed, and said giving the Examiner and subsidy to the Fangs was unnecessary to stave off antitrust concerns. Furthermore, Walker said the Examiner giveaway may itself ``constitute a violation of the antitrust laws.″

Experts said the ruling places Hearst in a difficult position.

``It’s a very odd arrangement indeed,″ said Ben Bagdikian, author of ``The Media Monopoly″ and former dean of the University of California, Berkeley journalism school.

Bagdikian suggested that, by helping Fang keep a much smaller, local version of the Examiner afloat, Hearst will more easily fend off circulation gains by Knight Ridder’s San Jose Mercury News, which began publishing a San Francisco edition this week.

``Hearst has to worry that Knight Ridder is coming into the city. The existence of the Fangs makes Knight Ridder’s prospects slightly more troublesome,″ he said.

Reilly, who already spent more than $1 million pursuing the lawsuit against Hearst, said the decision could doom Fang’s pending ownership of the Examiner.

``I feel vindicated by the judge’s stinging criticism of the Fang transaction,″ Reilly said. ``One of the things I want to explore is the consequences of the judge’s decision on that Fang transaction.″

The drama began in August 1999, when Hearst announced its purchase of the Chronicle. At the time, Hearst said it would sell or close the Examiner, one of the largest remaining afternoon papers, after 120 years of Hearst ownership.

Hearst said its agents later contacted more than 80 prospective buyers, including the nation’s leading publishers, and found no one willing to pay for the money-losing Examiner.

After months of civic pressure to keep the Examiner alive, Hearst agreed to pay Fang the subsidy as well as support the Examiner during a four-month transition period. The Fang deal won high praise from the Justice Department, which found no antitrust violations and approved the dissolution of the JOA.

But Reilly filed suit, contending the transaction was designed to fail quickly and leave San Francisco with only one newspaper after more than a century of competition.

While the judge ruled that Reilly did not have legal standing to contest the deal with the Fangs, he left open the possibility that others could take Reilly’s place.

The judge expressed serious suspicions that the Department of Justice, which signed off on the deal, had been influenced by political ``cronyism.″

During the trial, Tim White, the Examiner’s publisher, shocked the courtroom when he revealed that at a lunch meeting in August 1999, weeks after the purchase of the Chronicle had been announced, he offered Brown favorable treatment in editorials if the mayor would support the deal.

Brown initially was outspoken against Hearst’s plans, urging the White House and Justice Department to block the Chronicle sale until Hearst found a buyer for the Examiner. After meeting with White, Brown worked behind the scenes to support the Examiner sale to the Fang family, even negotiating for a bigger Hearst subsidy.

``The court is deeply troubled by the DOJ’s role in this case. Both of the DOJ’s key positions, that the Hearst-Chronicle merger created antitrust concerns, are unsupported by legal analysis and inconsistent with the evidence,″ Walker wrote Thursday. ``The cronyism that fueled the Fang transaction at the local level exerted influence over the DOJ investigation.″

Walker’s ruling could finally end the rivalry between the two newspapers, which have been steeped in drama since they were founded in the frontier town on San Francisco Bay.

The Examiner began with a card game in 1880, when mining, real estate and ranching millionaire George Hearst got the then-unprofitable, 5,000-circulation Examiner as partial payment on a gambling debt. Seven years later, his son William Randolph Hearst took over ``our miserable little sheet.″

Meanwhile, the Daily Dramatic Chronicle was founded in 1865 by the de Young brothers, Michael and Charles, with a $20 gold piece they borrowed from Michael’s landlord.

One of the de Youngs’ granddaughter’s, Nan Tucker McEvoy, rejected a Hearst Corp. offer of $800 million in 1993 for Chronicle Publishing, which included other newspapers, TV stations and book publishing companies. Last year, the potential for a huge payout outweighed the family’s sentimental ties to their media company. When all is done, 24 de Young family shareholders will split well over $2 billion.

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