MediaNews and ‘SF Chron’ Plan to Consolidate in Bay Area

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MediaNews Group Inc. and the San Francisco Chronicle plan to consolidate some of the business operations of their Bay Area newspapers, but will refrain from doing so pending the outcome of a federal antitrust trial challenging the deal, both companies said Wednesday.

Last week, U.S. District Judge Susan Illston tentatively blocked MediaNews and the Chronicle’s owner, Hearst Corp., from merging local distribution and national ad sales. Illston said such a deal could pave the way for “price manipulation” and make it harder for new competitors to enter the market.

New York-based Hearst Corp. has invested $300 million in a complex deal that gives MediaNews three more Bay Area newspapers? on top of the seven it already owns, including the Oakland Tribune. Hearst’s investment helped Denver-based MediaNews finance the purchase of Hearst rivals Contra Costa Times, the San Jose Mercury News and Monterey County Herald earlier this year.

In issuing the temporary restraining order against the alliance, Illston said she had been under the impression that Hearst’s investment was solely an equity stake, but an April 26 memo had surfaced suggesting it actually was a bid to merge operations.

Illston’s comments bolstered San Francisco businessman Clint Reilly’s federal antitrust claims against the publishers.

In court briefs and in interviews Wednesday, the publishers said they planned to move forward with the consolidation by winning the right to do so at trial by proving the plan is not anticompetitive. Executives have said the two companies had not engaged in any discussions to merge operations since the letter was written.

“Riley’s allegations are hyperbole and don’t have any substance,” Hearst attorney Daniel Wall said in an interview. “We do intend to prove, at trial, that nothing we contemplated would be unlawful.”

Joseph Alioto Jr., Riley’s attorney, said the publishers “have no chance” of pulling that off.

“It’s a price-fixing agreement. They’re gonna fix the prices of advertising,” he said. “This is first-year law school stuff.”

The publishers said in the court briefs that advertisers and even readers have other venues besides newspapers.

“A newspaper-only market with a Bay Area-wide scope is not a realistic market here,” they said. “No significant group of advertisers faces that market, and in the day of the Internet, it is plain that readers do not either.”

MediaNews and Hearst are combining efforts in other ways, which Illston has not blocked. Two weeks ago, they joined forces with more than 150 dailies in 38 states in a bid to generate more online advertising revenue by working with Yahoo Inc., the Internet’s most trafficked site.

Sacramento-based McClatchy Co. got the papers targeted in Reilly’s suit as part of its $4 billion acquisition of San Jose-based Knight Ridder Inc., a takeover that included $2 billion in debt assumption. McClatchy then struck deals to sell 12 of Knight Ridder’s former 32 daily papers, including some to MediaNews.

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