S.F. Judge Blocks Hearst/MediaNews Collaboration

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By: Mark Fitzgerald

In a victory for a local businessman seeking to overturn a complex San Francisco Bay Area newspaper deal between Hearst Corp. and MediaNews Group Inc., a federal judge Tuesday issued a preliminary injunction blocking the chains from collaborating on joint distribution or advertising sales of their papers.

U.S. District Judge Susan Illston noted in her ruling that both companies have said they have never had any talks about collaboration between the Bay Area papers. The issue arose when lawyers for San Francisco developer Clint Reilly, who brought the case, discovered an April 26 letter from Hearst to MediaNews outlining an agreement to explore joint national and Internet advertising sales for the newspapers, as well as joining the online classified sites CareerBuilder and Classified Ventures on equal financial terms.

“Defendants base their opposition to the preliminary injunction primarily on the fact that they have no intention of pursuing any agreements of the nature described in the April 26 letter between now and the trial date” in April 2007, Illston wrote. “The Court does not doubt the sincerity of defendants’ representations. However, the Court is concerned that denying the preliminary injunction may leave defendants unsure of whether they are free to immediately pursue such agreements.”

Illston added that the April 26 letter “is in the form of a potentially binding agreement,” and indicates the two companies have “expressed the desire, if not the intent,” to collaborate in the Bay Area.

“The Court therefore wants to leave no confusion as to its expectation that defendants will comply with their stated intent not to pursue any of the agreements at issue; the only way to do so definitively is to issue the preliminary injunction,” Illston wrote.

In a statement, a Hearst spokesman said the order “is consistent with the representations made in the papers we recently filed in court.” MediaNews had no immediate comment.

Reilly’s suit contends that the complex deal Hearst and MediaNews reached last summer to give MediaNews control of three more dailies and several weeklies in the Bay Area amounts to an attempt to impose monopoly newspaper ownership. His lawyers argue that the April 26 letter shows that the companies intend to coordinate business interests, despite public assurances that the two will compete vigorously in the region, where Hearst publishes the largest daily, the San Francisco Chronicle, and MediaNews publishes the San Jose Mercury News and 43 other papers.

In the deal this summer, set off by Knight Ridder Inc.’s decision to put itself up for sale, MediaNews bought outright the Mercury News and Contra Costa Times, while Hearst put up $263.2 million to buy the Monterey Herald in the Bay Area, and the St. Paul Pioneer Press in Minnesota.

Hearst then transferred ownership to William Dean Singleton’s MediaNews in exchange for a then-undisclosed equity stake — revealed in court to be 30% — in MediaNews properties outside the Bay Area.

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