Businessman sues McClatchy to prevent US$737M sale of three San Francisco Bay Knight Ridder papers

Kleanthis Economou

SAN FRANCISCO , July 14, 2006 (Associated Press) – A prominent businessman who turned the sale of the San Francisco Chronicle into a drawn-out legal drama six years ago is now suing to prevent McClatchy Inc. from completing a $737 million deal to sell three of the newspapers it picked up in its recent acquisition of Knight Ridder Inc.

Clinton Reilly, a millionaire real estate investor, plans to file an antitrust lawsuit Friday that could derail or at least delay McClatchy's plan to unload the San Jose Mercury News, Contra Costa Times and Monterey Herald, according to his lawyer, Joseph A. Alioto.

The lawsuit, to be filed in U.S. District Court in San Francisco, names as defendants MediaNews Group, publisher of The Oakland Tribune and other newspapers; the Hearst Corp., which publishes the San Francisco Chronicle; Gannett Corp. and Stephens Media Group, a privately held a company.

Sacramento, Calif.-based McClatchy reached an agreement in late April to sell the three San Francisco Bay area papers to MediaNews with backing from Hearst and the other publishers. The resulting partnership, which already is under review by the U.S. Justice Department and California's attorney general, creates a monopoly that would drive up newspaper prices and reduce jobs in the industry, Alioto said.

"By entering into these combinations, the partners immediately eliminate themselves as potential competitors in the Bay Area," Alioto said.

William Dean Singleton's MediaNews Group Inc. already owns 22 newspapers in Northern California. Besides the Tribune, they include the Marin Independent Journal, The Vacaville Reporter and others with a combined readership of more than 70,000. It is that concentration of publishing power that Reilly's suit seeks to stop, Alioto said.

Reilly is seeking an injunction that would block MediaNews from taking the papers off McClatchy's hands, arguing the deal would hurt readers and advertisers by consolidating so many neighboring newspapers under the same owner.

MediaNews President Jody Lodovic said Thursday that he had not seen the lawsuit, but he dismissed the suggestion that Bay Area readers would be ill-served by the sale. He said the newspapers McClatchy is selling have "virtually no overlap" in terms of circulation with the papers Singleton already owns.

"The efficiencies created from this should more than offset any of those competitive issues," Lodovic said. He added that since state and federal authorities already are reviewing the sale, "I don't know what (Reilly's) assuming he is going to accomplish."

Reilly spent more than $1 million pursuing a private antitrust lawsuit to block Hearst from acquiring the San Francisco Chronicle in 2000. A judge ultimately rejected Reilly's claims that the sale created a monopoly for Hearst, which already owned the rival San Francisco Examiner. But the litigation delayed and complicated the deal.

Under the proposed agreement with McClatchy, announced April 26, MediaNews would acquire the San Jose Mercury News and the Contra Costa Times, which will then be folded into the California Newspaper Partnership, an entity in which it has a 54 percent stake.

The other two stakeholders in the partnership, industry leader Gannett Co. and the privately held Stephens Media Group, have agreed to contribute their share of paying for the two papers, according to a joint statement from McClatchy and MediaNews.

Separately, Hearst will buy the Monterey County Herald, as well as the St. Paul Pioneer Press, and then transfer them to MediaNews in exchange for a stake in all newspapers that MediaNews owns outside of the Bay Area.

The deal would make MediaNews the fourth-largest newspaper company in the country in terms of circulation, with about 2.7 million daily circulation and 53 daily newspapers.