Court Will Hear New Bid To Unravel MediaNews/ Hearst Deal in Bay Area

By: Mark Fitzgerald An attorney for the San Francisco real estate developer challenging the complex newspaper swap and investment deal between Hearst Corp. and MediaNews Group Inc. said he hopes to get a temporary restraining order (TRO) at a court hearing Wednesday based on recently uncovered evidence.

"What I can tell you is it's a motion for a temporary restraining order based upon evidence we've uncovered since the last hearing which we believe substantially undercuts their position," attorney Joseph M. Alioto said in a telephone interview Tuesday.

In the $1 billion deal this summer that gave MediaNews control of four San Francisco Bay Area dailies, MediaNews bought the San Jose Mercury News and Contra Costa Times, while Hearst, which owns the San Francisco Chronicle, bought the Monterey County Herald and the St. Paul Pioneer Press in Minnesota. Hearst agreed to give those papers to MediaNews in exchange for a stake in MediaNews. At the time the companies said Hearst's stake would exclude any MediaNews papers in the Bay Area.

Alioto indicated the new evidence, which he would not detail, undercuts several representations Hearst and MediaNews made last summer when they successfully opposed developer Clint Reilly's previous bid for a TRO on the deal.

"They made a very big show (of saying) that the only connection between Hearst and MediaNews was that Hearst was financing, helping to finance, the purchase of papers for MediaNews -- which is weird in itself -- and that the only interest they have is in non-Bay Area newspapers. That is what they told the court. And the court relied on that," Alioto said.

"And they said that there were no secret agreements, and that they would continue to compete on pricing, especially in advertising, and in other areas," he added.

Hearst and MediaNews obtained a court order sealing all documents that had not yet been publicly disclosed in the lawsuit against the companies brought in July by developer Clint Reilly. "Unfortunately, under the circumstances, I am not able to tell you what (the evidence) is about because of the confidentiality order -- that we're very upset about and that we can't understand why media companies are not coming to the court and advocating for making public these documents just as they are in any other case," Alioto said.

When Judge Susan Illston in July rejected Reilly's motion for a TRO, she wrote that while "there is a need to examine the consequences of the proposed sale further to ensure that no long-term harm will come to Bay Area residents,'' the deal "creates no pressing and imminent danger."

Since that time, MediaNews has implemented several cost-cutting measures in its cluster of Bay Area newspapers that critics of the deal say amount to permanently changing the papers. It has laid off scores of employees, consolidated some editing functions from several papers at a single location, and recently announced its ad makeup would be performed offshore by a company in India.

"They're trying to wipe out major (newspapers)," Alioto said. "The first thing these guys always do is they fire everybody that they can. Secondly, they consolidate all their operations and push some of them offshore. And then they have skeleton operations. ... That's just one of the things that we're going to try to stop tomorrow."

The offices for attorneys for Hearst and MediaNews separately said the lawyers were not immediately available for comment.

Reilly's TRO bid comes as speculation heats up in San Francisco media circles about the status of an ongoing U.S. antitrust investigation into the deal. This summer the U.S. Justice Department's Antitrust Division cleared the sale of the Mercury News and Contra Costa Times to MediaNews Group, but said it was still looking at the stock deal with Hearst.

"I know (antitrust investigators) are interviewing everybody and their mother," said one person, who demanded anonymity because he said he had been interviewed by the investigators.

A spokeswoman for the Antitrust Division said she could confirm the investigation is still open but was unable to comment further because it is an ongoing matter.