Reilly Lawyer: Deal Keeps Alive Bay Area Papers 'Headed for Graveyard'

By: Mark Fitzgerald and Jennifer Saba The Oakland Tribune, the Fremont Argus and other smaller San Francisco Bay Area dailies will "stay alive" only because of the settlement reached Wednesday, said the head lawyer for Clint Reilly, whose lawsuit had accused Hearst Corp. and MediaNews Group of scheming to monopolize the region's newspaper market.

"The smaller local papers will be able to survive now," Alioto told E&P in an interview after the settlement announcement.

"The Oakland Tribune, the Fremont Argus, San Mateo (County Times), (The Daily Review in) Hayward, Novato (Marin Independent Journal) -- all of those papers were heading for the graveyard," Alioto added. "There was pretty strong evidence those papers were going to go out. By reason of our agreement, I think, they'll stay alive, at least for three years."

Under the settlement, Hearst, which publishes the San Francisco Chronicle, and MediaNews agreed not to collaborate on national advertising, Internet advertising, sales, distribution or production in the Bay Area, Alioto said.

A Hearst statement said the settlement mandates "certain changes" in the complex Bay Area deal between Hearst and MediaNews. Hearst said the two chains "had already decided to make most of these changes during the course of the Hart-Scott-Rodino review by the Department of Justice. The changes have no material effect on Hearst's investment in the non-Bay Area assets of MediaNews Group."

The settlement also rescinds Hearst's right to convert its interest in MediaNews properties outside the Bay Area into a direct investment in the Denver-based company.

"Those are the two things that really kind of stop the creation of the monopoly they were trying to implement," Alioto said.

In an interview, Daniel M. Wall, an attorney for Hearst at Latham & Watkins in San Francisco, said Hearst and MediaNews Group went along with a "number of changes we were going to make anyway to deal with issues coming up -- not just in this case, but with the Department of Justice (DOJ)."

Wall said they agreed to table "indefinitely" strategies explored in an April 26 letter from Hearst to MediaNews Group.

He also pointed out that this settlement has nothing to do with the DOJ. But that he's "hopeful and optimistic" that because of the changes made, the DOJ will green light the transaction.

Reilly, a real estate developer who has been politically prominent in San Francisco, also gets a watchdog role in the settlement.

"If there are efforts to limit the number of reporters, we're going to be able to have something to say about that," Alioto said. "If they're talking about consolidating printing, we'll have opportunity to say something about that."

For the next three years, he'll have the right to sit on the editorial board of any paper in the California Newspaper Partnership (CNP), a group controlled by MediaNews that operates Bay Area papers, including those owned by Gannet Co. and Stephens Media Group.

Reilly will be able to appoint a private citizen acceptable to the newspaper to the editorial board of all other CNP paper for the next three years.

Reilly will get the minutes and agenda at the same time that directors of the CNP receive them.

"And if there are any efforts, if there's any suggestion by anybody of any kind of discussion or cooperative effort (between companies), we will be immediately notified," Alioto said.

"Because, obviously, if they have that -- we'll just sue them again," he added.

The settlement does not give Reilly the thing he was asking the court to do: Unwind MediaNews' complex $736 million purchase of the San Jose Mercury News and the Contra Costa Times. MediaNews bought the papers last June from The McClatchy Co., which acquired them as part of its acquisition of Knight Ridder Inc. Hearst also bought two former Knight Ridder papers, one in the Bay Area, the Monterey County Herald, and the other a competitor to the Minneapolis Star Tribune, then owned by McClatchy, the St. Paul Pioneer Press. Hearst also bought a southern California paper, the Daily Breeze in Torrance in a $288 million deal.

Hearst then agreed to turn ownership of the three papers over to MediaNews in exchange for equity in MediaNews' non-Bay Area properties.

Under the settlement, Reilly will also get a bully pulpit in all CNP newspapers for the next three years. He will get a quarter-page of paid space free for "personal copy" in the local section of each CNP paper once a week.

The settlement calls for Hearst and the other companies in CNP to pay all Reilly's attorney fees and court costs. Reilly himself will receive no money, Alioto said.

Reilly will be back in court soon filing a motion to unseal all documents and depositions in the lawsuit. Alioto said MediaNews has "given up" on opposing the unsealing, but that Hearst and Gannett have indicated they will fight the motion.

"I just think the judge is going to kill them," Alioto said. "It's so hypocritical because the whole thrust of newspaper reporting is the right of the people to know. ... It's not a good public relations thing they're doing."


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