Monday, July 31, 2000

By: Joel Davis

JUDGE WON’T BLOCK SAN FRANCISCO NEWSPAPER DEAL

Combative Reilly Could Choose To Appeal Decision



Seemingly while holding his nose, a federal judge ruled Thursday
he will not block the sale of the San Francisco Chronicle to the
Hearst Corp. and that his court has no legal footing to stop the
sale of the San Francisco Examiner to the Fang family.



In permitting the $660-million Chronicle sale, U.S. District Judge
Vaughn Walker blasted the Department of Justice (DOJ) for interfering
in the Chronicle deal for political reasons, expressed doubts about
the Fangs’ ability to run a paper that he hinted should be allowed
to die, and criticized several top Hearst executives for being
untruthful. In his 46-page ruling, Walker also said Clint Reilly,
the millionaire businessman and would-be mayor who brought the suit
to prevent the deal between the de Young family’s Chronicle
Publishing Co. and Hearst, does not have the legal standing to
challenge the Examiner sale.



The judge repeatedly called the Examiner a failing paper that would
be ‘a sure loser’ outside its joint operating agreement (JOA) with
the Chronicle, and added that the ‘problematic’ JOA ‘was not worth
saving.’ The Fang purchase, heavily subsidized by Hearst, does not
include participation in the JOA.



But the judge saved most of his vitriol for the DOJ, finding that
the ‘cronyism that fueled the Fang transaction at the local level
also exerted influence over the DOJ investigation.’ He deemed the
DOJ sanction of the Fang deal faulty, calling it ‘political
favoritism masquerading as law enforcement.’



While finding that Hearst is under no legal obligation to sell to
the Fangs, Walker, nevertheless, said it was not in his power to
block a deal he characterized as economically far-fetched. ‘The
court is presently unable to do more than identify the malodorous
aspects of the Fang transaction.’



Saying he ‘hasn’t digested the opinion yet,’ Fang declined comment.
Fang attorney David M. Balabanian claimed victory, however. ‘The
Fangs will be given an opportunity to make good on a promise,’ he
told reporters.



Chronicle Publisher John Sias said he is ‘thrilled’ with the outcome
and said it is the Chronicle’s intent to finalize the sale to Hearst
‘very expeditiously.’



While Hearst officials will no doubt be pleased with the ruling, they
may be smarting a bit from the judge’s characterization of Hearst
executives George B. Irish and Frank A. Bennack Jr. Walker said both
men were aware of now-suspended Examiner Publisher Tim White’s ‘horse
trade’ overtures to San Francisco Mayor Willie Brown in exchange for
favorable editorial coverage, despite Hearst denials to the contrary.
‘These denials are not credible, and the court does not believe them,’
Walker wrote.



The judge does believe, however, that newspaper competition is alive
and well in San Francisco. Ironically, he cited the rival San Jose
Mercury News’ high-profile expansion into San Francisco just last week
as a key element of that competition. ‘The San Jose Mercury News poses
a serious challenge to the market share of the San Francisco-based
metropolitan dailies,’ Walker asserted. ‘The Mercury News is a
comprehensive, widely circulated newspaper of high quality.’





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Joel Davis (jdavis@editorandpublisher.com) is West Coast editor for E&P.









(c) Copyright 2000, Editor & Publisher

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