Judge blocks newspaper deal

Sam Skolnik

Wednesday, Nov. 29, 2006 | 7:04 a.m.

A federal judge in San Francisco temporarily blocked a business arrangement between the newspaper chains Hearst Corp. and MediaNews Group on Tuesday, saying the deal may be both anti-competitive and illegal.

The Stephens Media Group, the Arkansas-based company that owns the Las Vegas Review-Journal, is a major stakeholder in the California Newspapers Partnership, which is primarily owned by MediaNews and is a defendant in the case. Stephens also is a defendant in its own right.

The agreement at issue was spurred by the sale this year of the Knight Ridder newspaper chain to McClatchy Co.

Soon after the sale was announced in March, McClatchy said that it would transfer four of the papers it had just bought to Denver-based MediaNews - the San Jose Mercury News, Contra Costa Times and Monterey Herald in Northern California, and the St. Paul Pioneer Press in Minnesota - in a complicated series of transactions,.

MediaNews already owned the Oakland Tribune and seven other Bay Area newspapers.

The $1 billion deal included $300 million in financing from Hearst, owner of the San Francisco Chronicle.

Former San Francisco mayoral candidate Clinton Reilly filed suit against MediaNews in July, claiming that each of the parties, including Stephens, had conspired to quash competition among Bay Area newspapers, and that if the deal were to go through, every major paper in that region would be owned or operated by MediaNews and the newspaper partnership, thus violating federal antitrust laws.

Reilly initially had requested a temporary restraining order before the deal closed, but was rebuffed by U.S. District Judge Susan Illston. He filed again, claiming that he had new evidence of collusion - and this time she agreed.

Illston noted the newly discovered existence of an April 26 letter in which it appeared that Hearst was motivated to help facilitate the sale so that in return Hearst could combine its advertising and distribution functions with its local rivals.

"Such agreements, the mere existence of the letter and the cooperation between Hearst and MediaNews they reflect, increase the likelihood that the transactions at issue here were anti-competitive, and illegal," Illston wrote in Tuesday's order.

According to Reilly's lawyer, Joseph M. Alioto of San Francisco, before they learned of the letter, both his client and Illston had been fooled by the newspaper companies.

"It's absolutely outrageous," Alioto said. "They showed complete disregard for the law."

According to Alioto, Stephens, as a major investor in the deal to the tune of $180 million, "was in there with both feet."

The other two members of the newspaper partnership, Stephens and Gannett, were aware of the details of the MediaNews-Hearst agreement as it progressed, Alioto said, and thus deserve a portion of the blame.

Representatives for Stephens, including attorneys in Washington, D.C., and San Francisco, could not be reached for comment Tuesday.