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Friday, July 28, 2000



Star-Bulletin closing

Newspaper ruling
may affect sale
of Bulletin

One observer says the ruling may help owners of isle dailies, but others say it will not have any effect

Challenger trying to stop Hearst deal

By Peter Wagner
Star-Bulletin

Tapa

A ruling by a federal judge allowing the sale of the San Francisco Chronicle could embolden the owners of Honolulu's two daily newspapers in their efforts to close the Star-Bulletin, one media observer says.

But others say the cases are too different for the ruling to have much effect here.

"The judge made such a sweeping statement that it could encourage other owners who are hoping to get rid of a competing daily," said Ben Bagdikian, media observer and former dean of the University of California at Berkeley. "The judge seemed to be unconcerned with the disappearance of a competing paper in the same city."

U.S. District Judge Vaughn Walker ruled yesterday that Hearst Corp., owner of the San Francisco Examiner, can acquire the San Francisco Chronicle and end the joint operating agreement between the two papers without violating antitrust laws.

The $660 million sale has been on hold since an antitrust lawsuit was filed against Hearst and the Chronicle Publishing Co. in March by former San Francisco mayoral candidate Clint Reilly.

Reilly argued that Hearst's offer to give the Examiner, an afternoon paper, to San Francisco's Fang family, owner of the weekly Independent, plus a $66 million operating subsidy was a "scam" meant to fail. While Walker ruled against Reilly, he also criticized the deal as "malodorous."

In Honolulu, a similar antitrust case is pending against Star-Bulletin owner Liberty Newspapers and its joint operating partner, Gannett Pacific Corp. Last September, Gannett offered Liberty $26.5 million to end their joint operating agreement and close the Star-Bulletin. The lawsuit, which halted plans to shut down the afternoon paper, is on hold pending an effort to sell the afternoon newspaper.

Gannett, owner of the Honolulu Advertiser, also controls the Hawaii Newspaper Agency, the JOA company that runs the business functions of the two newspapers, which maintain separate newsrooms.

Mike Fisch, publisher of the Advertiser and president of HNA, declined to comment yesterday.

The effort to sell the Star-Bulletin faces an Aug. 14 deadline for bids. A number of groups, including one comprised of nearly all of the Star-Bulletin's newsroom employees, have publicly expressed an interest in the afternoon paper.

'Completely different animal'

Josh Wolf-Powers, an associate at investment firm Keilin & Co. in New York who is representing Star-Bulletin employees as potential buyers, said today that the San Francisco ruling probably will not make any difference in the Honolulu case.

"My sense is, it's a very different circumstance, that they are very different situations," he said.

Mike McKenna, an auto dealer and former newspaper owner whose investment group is considering a bid for the Star-Bulletin, said the San Francisco case has little bearing on his plans.

"This is a completely different animal," he said today, noting the lack of editorial competition for Honolulu's two daily newspapers and the recent move by the San Jose Mercury News into the San Francisco market.

"I can't tell you how many people come up to me and say, 'We cannot allow just one newspaper in this town,'" McKenna said. "They've even offered money to invest in the paper."

Unlike the Fang family, which has said it needs a $66 million subsidy to operate the Examiner, McKenna said his group is capable of running the Star-Bulletin without help.

But a subsidy would expand possibilities, he said.

"We have operating capital; that's not a problem," he said. "But you never have enough operating capital for a new business starting up. A subsidy would give us a lot of different avenues, like buying a press and things like that."

While allowing the transaction to continue, Judge Walker noted the Examiner subsidy could violate antitrust laws.

Peter McClaran, publisher of the Kauai Business Report and part of another group interested in the Star-Bulletin, today said he is counting on a subsidy of some kind from Gannett.

"This might change Gannett's view of whether they have to go as far as they might otherwise have gone in subsidizing the paper," he said. "We're still going through with our bid, but I think any investor group that comes in is going to need help in the form of a subsidy."

Neither Liberty nor Gannett has mentioned the possibility of such a subsidy for the Star-Bulletin.

Isle judge takes more interest

Bagdikian noted that U.S. District Judge Alan Kay, presiding over the Hawaii case, has shown greater interest in the fate of the Star-Bulletin than Walker for the Examiner in San Francisco.

"The judges are different and the situations are different, but certainly the judge in Honolulu has been much more aggressive in trying to maintain two voices in the city," Bagdikian said.

Walker said in his 46-page ruling that Hearst had been unduly pressured by the U.S. Department of Justice into giving the Examiner to the Fangs and that it was not necessary to offer the newspaper for sale because it was a failing enterprise.

"It's certainly a sweeping statement that in effect says Hearst could do whatever it wanted and didn't have to take any steps to keep the Examiner alive," said Bagdikian.

James Bickerton, an attorney representing a citizens group against the publishers in the Honolulu suit, yesterday said the San Francisco and Honolulu cases have little in common.

"We think the facts of the San Francisco case are very different, and we doubt that this ruling will have much application here," Bickerton said.

Among the differences, he said, are competing newspapers in nearby Oakland, San Jose and Sacramento. But if the Star-Bulletin were to close, Honolulu daily newspaper readers and advertisers would have only the Advertiser.

Bickerton also noted a closer parity in subscription between the Honolulu dailies than those in San Francisco, where the Chronicle holds a 4-to-1 dominance with 465,000 readers vs. 102,000 at the Examiner.

Most recent audited circulation figures show the Advertiser with a distribution of about 105,000 and the Star-Bulletin with 67,000. The March 1999 report showed the Advertiser with 56,121 home subscribers and the Star-Bulletin with 52,490.

Legal experts surprised

Yesterday's ruling drew surprise from some legal experts in Honolulu, who said federal antitrust laws call for strict standards when it comes to closing a failing newspaper.

"I would think the law would be extra vigilant to make sure there are not monopolies," said Patrick Jaress, former head of the antitrust division in the state attorney general's office and now in private practice. "Even if there's a failing situation, you make a reasonable effort to make sure there's another editorial voice in the community."

In his decision, Walker cited the "failing-company doctrine," which allows a larger company to absorb and then shut down a smaller company without antitrust implications if the company is likely to fail. He noted figures provided by Hearst and joint operating partner Chronicle indicating that the Examiner would have lost more than $33 million as a stand-alone company in 1998.

Robert Haiman, Distinguished Editor-in-Residence at the Poynter Institute, yesterday lamented Walker's ruling. "I think it's terribly important for cities of any size to have more than one newspaper," he said. "It's tragic that there are so few cities now where there are strong competing newspapers."

Bruce Brugmann, editor and publisher of the San Francisco Bay Guardian, had stronger words. "The worst crime ever, in my view, in journalism is to kill a newspaper, and that's what the judge allowed here," he said.



Bulletin closing archive


Hearst-Chronicle pact
signed after judge’s OK

But the plaintiff seeks again to
block the deal while the fate of
the Examiner remains in doubt

Associated Press

Tapa

SAN FRANCISCO -- Legal jockeying continued today to try to thwart the Hearst Corp.'s $660 million purchase of the San Francsico Chronicle.

The move by local real estate millionaire Clint Reilly to block the deal came a day after U.S. District Court Judge Vaughn Walker said Hearst's Chronicle purchase "would not create a monopoly, substantially lessen competition or unreasonably restrain trade." The ruling rejected antitrust allegations Reilly had raised.

While Hearst representatives said the accord was signed hours after Walker's ruling, Reilly said today that he will ask the judge to put the deal on hold. He also wants either a new trial or for Walker to throw out his decision altogether in favor of Reilly.

Reilly was not the only one spoiled by Walker's decision. The ruling, if upheld, also may not bode well for a local newspaper publisher who agreed to take the San Francisco Examiner off Hearst's hands as part of for one dollar.

Ted Fang, publisher of Asian Week and the Independent newspaper in San Francisco, was promised a $66 million subsidy over three years from Hearst, which owns the storied afternoon daily now jeopardized by yesterday's decision.

But Walker went even further, raising 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 presure from the Justice Department and politicians including Mayor Willie Brown, a close Fang ally.

Hearst attorney Gary Halling would not say yesterday 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 finalized its deal to buy the Chronicle late yesterday, just hours after the judge's ruling, Hearst spokesman Paul Luthringer said today. He said he did not know when the company would decide whether to follow through on the other half of the deal with the Fang family.

Hearst representatives had 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 50-50 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 called the Examiner giveaway "malodorous" and may itself "constitute a violation of the antitrust laws."

The judge also said Reilly does not have legal standing to sue against the Examiner giveaway because he is not an advertiser in the newspapers or a competitor to the Hearst or Fang publications.

Reilly, who already spent more than $1 million pursuing the lawsuit against Hearst, said he was mulling over whether to appeal Walker's ruling. Meanwhile, he also 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, the second-largest newspaper in California and 12th largest in the nation. 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, a former mayoral candidate who lost his bid for the Examiner, sued to stop the sale. He contended the transaction was a sham, designed to fail quickly and leave San Francisco with only one newspaper after more than a century of competition.

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



Bulletin closing archive



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