Return To Seller p. 9

By: George Garneau

Ruling the deal violates federal antitrust law, a U.S. judge
rescinds $22 million sale of Arkansas daily; appeal likely sp.

TWO OUT OF three ain’t good, a federal judge has ruled in an antitrust dispute over a 14,000-circulation newspaper whose sale gave one family control of two of the three dailies in the northwest corner of Arkansas.
After a seven-day trial in May, U.S. District Judge J. Franklin Waters, on July 2, overturned the $22 million sale of the Northwest Arkansas Times in Fayetteville on the grounds that it violates terms of the Clayton Act barring transactions that lessen competition.
Waters said the sale to the Stephens family ? which already owns the 17,000-circulation Morning News in nearby Springdale through its Donrey Media Group subsidiary ? gave it enough market dominance to damage the competing Benton County Daily Record in Bentonville.
In what is believed to be the first time a court has ever reversed the sale of a newspaper company, the judge ordered another Stephens family subsidiary to return the paper to Thomson Corp. within 30 days.
Attorneys familiar with this kind of law said it is unusual, and extremely difficult, for one newspaper to prove an antitrust case against another.
A Stephens attorney said the company planned to appeal. Thomson had not decided whether it will appeal.
The case reveals a strange tale of huge corporations, including three wealthy Arkansas family fortunes, fighting to control a market in which three small papers ? combined daily circulation of about 40,000 and located within 25 miles of each other ? compete in two counties with a combined population of 233,000. The independent Daily Record is the smallest, with 9,000 daily circulation, or 16% of market share.
Thomson sold the Times in February to Northwest Arkansas Times Limited Corp. (NAT), a company formed by Stephens family trusts a month earlier. Through Little Rock-based Stephens Group Inc., the trusts represent the investment banking fortune amassed by Jack Stephens, who still runs the company, and his late brother, Witt.
The July 2 ruling ended the initial phase of a case filed the day the deal closed, Feb. 6, by the local real estate company Shearin Inc., and the parent company of the Daily Record, Community Publishers Inc. The companies asked for an injunction to halt the sale, and the U.S. Department of Justice filed its own case against the deal.
Opponents claimed that bringing the 14,000-circulation Times and the 17,000-circulation Morning News under Stephens ownership would lead to lower quality and higher prices.
Waters, in an 83-page ruling, held that “anticompetitive aspects” of the deal posed “various threats” to the Daily Record ? among them the possibility advertisers would have no choice, a “must buy,” but to patronize the Times and Morning News, and the possibility a deal for sharing news and ads would be terminated between the Times and Daily Record.
Waters held that NAT’s acquisition of the Times was the same as Donrey buying it and that the deal substantially lessened competition. With 84% of the market’s daily circulation, and 88% of advertising, controlled by Stephens, there is a clear presumption of anticompetitiveness, the judge said, agreeing with Shearin that it faced a threat of monopolistic ad prices.
The defense’s explanation that new competitors will enter the market if the papers behave monopolistically, the judge said, is “specious in the context of the local daily newspaper industry.”
“Consumers and small businesses in northwest Arkansas are the winners in this case,” said Anne Bingaman, assistant attorney general in charge of the Justice Department’s antitrust division. She said the ruling ensures that “vigorous competition” for readers and advertisers will continue between the Times and News.
“An appeal will come shortly,” NAT attorney Jerry Jones told the Daily Record, saying he disagreed with major elements of the opinion, including the judge’s decision to define the marketplace as the three daily newspapers, excluding other media competition.
“We do not believe the opinion will withstand an appeal,” he said.
Paul Eyre, a Cleveland attorney for Baker & Hostetler who has defended newspapers in antitrust cases, said the decision was “stunning” because it limited the definition of the market to local dailies.
“While that definition may be consistent with prior cases, it misses the realities of the present day market place,” Eyre said, realities that often include competition from weeklies, shoppers, direct mail, billboards, radio, TV, auto traders, yellow pages and real estate magazines.
Eyre disagreed with the ruling, but expected it to have a limited impact because of the unique facts of the case.
Thomson Newspapers president Dick Harrington said that the company had prepared an appeal but had not decided whether to file it.
The Times was not among the 24 papers Thomson ? the seventh largest U.S. newspaper company, with 100 or so dailies and $2 million daily circulation ? put up for sale in January as part of a strategic restructuring. Instead, the Times was offered separately because several investors had already expressed an interest in it.
Lest anybody get the impression that this is a case of David and Goliath, the Record is owned by Jim Walton, son of the late Sam Walton, who built Wal-Mart Stores into the nation’s biggest retailer and himself into one of the nation’s richest men.
Thomson spurned Jim Walton’s effort to buy the Times, in partnership with Walter Hussman, the Arkansas newspaper scion whose Arkansas Democrat vanquished Gannett Co.’s Arkansas Gazette in a David-and-Goliath war of attrition. That battle involved a reversal of character ? David became Goliath and vice versa ? and an unsuccessful 1980s antitrust case in which the Patterson family, which owned the then-dominant Gazette, accused Hussman’s WEHCO Media of antitrust violations. When the Pattersons lost, they sold the Gazette to Gannett, the nation’s biggest newspaper company.
Waters said the events leading to the sale of the Times illustrate “the noncompetitive manner in which the Stephens family does business” and how Thomson, the Canadian-based travel and information conglomerate, closed the deal “despite the existence of substantial antitrust questions.”
The Stephens family bought Donrey ? the 17th biggest U.S. newspaper chain, including 53 dailies, 71 non-dailies, and TV holdings ? in 1993 for an estimated $950 million after founder Don Reynolds died.
The following account of events leading to the sale of the Times is based on the judge’s ruling.
As early as September 1994, Thomson and Donrey officials met ? but each was interested in buying, not selling, in order to gain the upper hand in northwest Arkansas.
Two months later, a deal was reached for Thomson to turn over the Times to Donrey, in exchange for properties dealt through an unidentified third party, but the deal collapsed when the middleman backed out.
Amid Thomson’s talks with Donrey executives, Jack Stephens intervened to acquire the paper through a separate corporation, NAT, ostensibly so that family members could be more active in operations than they would under Donrey. Nevertheless, Thomson executives suspected that Stephens formed NAT to acquire the Times so as to avoid filing a notification with federal regulators, as would have been required of Donrey under terms of the Harte-Scott-Rodino law.
Thomson had two prices in mind for the Times: a low one for a buyer who would run it independently, and a high one, some 15 times earnings, or $20 million, for a buyer who would merge it with one of the other local papers.
With a Feb. 8 deadline looming for receipt of bids, Harrington met with Stephens at Thomson headquarters in Stamford, Conn., Jan. 27, and demanded a “preemptive bid premium” of 10%, or $2 million, on top of the $20 million Stephens had offered.
Stephens paused, gulped and agreed.
None of the parties “ever took account of the recognized fact that the Times was worth less as a stand-alone venture,” the judge said.
Before the deal was signed, Thomson, put on guard by Walter Hussman’s threat of an antitrust suit, insisted on a provision protecting Thomson in the event of a legal challenge. Hussman was not involved directly in the suit, but did testify.
Thomson was served papers Feb. 5, and a hearing was set for Feb. 7 on a motion to halt the sale, but Thomson closed the deal anyway on Feb. 6.
Thomson executives “went into this transaction ‘with their eyes wide open.’ They were paid handsomely to gamble that this hurried up transaction would withstand antitrust scrutiny,” the judge said.
The Stephens family has proposed changes to reduce its ownership in the Times to 95% and to cut its stake in Donrey to 20%, but family interests would have “little, if any, incentive to compete aggressively against themselves,” Waters said.
Seeking to do “the right thing,” the judge ordered rescission as the best remedy for the “unlawful” sale, on the grounds that Thomson is in the best position to operate the paper and find the best buyer.
Paul Eyre, a Cleveland attorney who has defended newspapers in antitrust cases, said the decision was “stunning” because it limited the definition of the market to local dailies.
?(Dick Harrington ) [Photo]
?(Jack Stephens) [Photo]

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