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Friday, March 24, 2000

San Francisco Examiner

Reilly still objects to
Examiner-Chronicle deal

By Bob Egelko
Associated Press


SAN FRANCISCO (AP) -- The Hearst Corp.'s sale of the San Francisco Examiner has not persuaded political consultant Clint Reilly to drop his antitrust suit against Hearst's purchase of the San Francisco Chronicle, Reilly's lawyer said.

Reilly intends to seek a restraining order against the sale of the morning Chronicle Monday unless he's persuaded that the Examiner's new owner has a fighting chance to restore newspaper competition to the city, attorney Joseph M. Alioto said Thursday. He said Reilly does not like what he's seen so far.

Based what's publicly known about the terms of the sale of the Examiner to local publisher Ted Fang, experts on newspaper operations and finances have advised Reilly that "there is no possibility of this being a competing newspaper," Alioto said.

He said the experts, including a former chief officer of the agency that publishes the Examiner and Chronicle, told Reilly that producing a daily newspaper competitive in advertising, circulation and news coverage will cost $80-100 million a year.

But Fang, publisher of the free Independent newspaper and Asian Week, has said his family is not wealthy. He is reportedly acquiring the Examiner for a nominal sum and will get a Hearst subsidy of up to $66 million over three years, a figure contained in Hearst's latest court filing.

Fang says he plans to switch the afternoon newspaper to mornings in August and compete against the Chronicle by focusing on local coverage.

Hearst reportedly will pay $660 million for the Chronicle, a deal scheduled to be completed next Thursday. Hearst's sale of the Examiner to Fang's new company, ExIn LLC, is to be completed at the same time.

The Examiner and Chronicle have run their business operations jointly and shared profits for 35 years, while keeping separate editorial staffs. Hearst announced the purchase of the Chronicle last August and said it would close the Examiner unless it found a buyer.

Alioto said Reilly would drop his objections "if the potential buyer looked as if it were going to be a viable competitive alternative to the Chronicle ... but from the information we have, that is not the case."

Hearst spokesman Paul Luthringer declined comment. But in court papers filed Thursday opposing Reilly's suit, Hearst argued that the sale of the Examiner should eliminate any legal objection to Hearst's acquisition of the Chronicle.

"The contemplated sales of the Chronicle and Examiner will ... promote the diversity of editorial and reportorial voices that Mr. Reilly claims to champion," said Gary Halling, a lawyer for Hearst. "For the first time in decades, there will be direct economic competition between two daily newspapers" in San Francisco.

Halling also said Hearst's "exhaustive" efforts to sell the Examiner showed that a multimillion-dollar subsidy was needed to find a buyer. He said Hearst contacted over 80 potential buyers, including publishers of the New York Times and Los Angeles Times and America Online, but only four were interested.

One potential buyer, Knight Ridder, which publishes the San Jose Mercury news and Contra Costa Times, expressed interest only if the offer included Hearst's 50 percent share of its joint operating agreement with the Chronicle, Halling said.

"We would only have been interested if we could take the Hearst position in the JOA, and even then we don't know if we would have gone ahead with it," Knight Ridder chairman and CEO Tony Ridder confirmed in a statement to the Examiner.

Reilly, who ran unsuccessfully for mayor last year, sued in January, claiming the purchase would violate antitrust laws by depriving readers of competing sources of news and advertising.

He contended Hearst's offer to sell the Examiner was a sham, but later submitted a bid himself when the offer was sweetened to include delivery trucks and other assets.

Alioto said the U.S. District Judge Vaughn Walker would likely consider the temporary restraining order Wednesday unless Hearst agrees to delay the purchase until April 13, the date of a previously scheduled hearing on Reilly's suit.

Alioto declined to identify the experts advising Reilly, but said they included a former chief officer of the San Francisco Newspaper Agency, which publishes the Examiner and Chronicle, as well as chief financial officers and other officials of major newspapers from around the country.

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