Fed Justice Department clears way for McClatchy to sell four newspapers | TahoeDailyTribune.com

Fed Justice Department clears way for McClatchy to sell four newspapers

Michael Liedtke

SAN FRANCISCO (AP) – Federal regulators cleared the way Monday for McClatchy Co. to sell four newspapers in a $1 billion deal that will establish MediaNews Group Inc. as the San Francisco Bay area’s largest newspaper publisher.

The U.S. Justice Department removed a potential stumbling block by closing its antitrust investigation into the 3-month-old deal involving the San Jose Mercury News, Contra Costa Times, Monterey Herald in northern California and the St. Paul Pioneer Press in Minnesota.

“After a careful investigation…the antitrust division determined that the transaction is not likely to reduce competition substantially,” the Justice Department said in a statement. Regulators interviewed more than 80 people, including newspaper advertisers, subscriber, labor leaders and industry experts, during the review.

The Justice Department’s decision will enable the sale to be completed later this week, MediaNews Chief Executive W. Dean Singleton said Monday.

A separate inquiry into the deal by California Attorney General Bill Lockyer remains open, said his spokesman Tom Dresslar.

San Francisco businessman Clinton Reilly also has sued to block the sale, but a federal judge last week refused to issue a temporary restraining order to prevent McClatchy from turning over the papers to MediaNews.

McClatchy took control of the papers a month ago when the Sacramento, Calif.-based company bought their former owner, Knight Ridder Inc., for $4 billion.

Before that acquisition closed, McClatchy agreed to sell the papers to Denver-based MediaNews in a complex deal that also involved the Hearst Corp.

But the handoff couldn’t be completed until the Justice Department was satisfied the sale wouldn’t harm Bay Area readers and advertisers.

As the review dragged on, McClatchy was left in the awkward position of owning four papers that it didn’t want. That situation threatened to become particularly thorny at the San Jose Mercury News, where labor contracts with about 600 workers expired June 30.

The Justice Department’s blessing came on the same day that MediaNews’ financing for the deal was set to expire.

In the Reilly lawsuit, MediaNews warned it might incur more than $20 million in additional expenses if its financing package unraveled.

McClatchy plans to use the $1 billion to lower the debt that it took on in the Knight Ridder acquisition, saving the company about $163,000 per day in interest expense, according to papers filed in the Reilly lawsuit.

McClatchy shares gained 41 cents to close at $42.39 on the New York Stock Exchange. The company’s stock price has dropped by 20 percent since the Knight Ridder takeover was announced in March, reflecting Wall Street’s dim outlook for the newspaper industry as more advertising shifts to the Internet.

Privately owned MediaNews already owns the Oakland Tribune and a cluster of suburban papers in the Bay Area. Adding the San Jose Mercury News and Contra Costa Times will give MediaNews more than 700,000 subscribers in the region, dwarfing the Hearst-owned San Francisco Chronicle, which listed just under 400,000 paid readers as of March 31.

All told, MediaNews owns 40 papers, including The Denver Post, The Salt Lake Tribune and The Detroit News.

The Justice Department’s review of the McClatchy’s sale focused on Alameda and Contra Costa counties, a mostly suburban region located across the bay from San Francisco where the San Jose Mercury News and Contra Costa Times compete with MediaNews’ papers.

Regulators concluded MediaNews will continue to face adequate competition from the San Francisco Chronicle. What’s more, the Justice Department said it believes consumers will benefit from the savings that MediaNews envisions by combining the production and distribution systems of its Bay Area papers.

MediaNews hopes to save about $22.5 million by blending some Bay Area operations, according to estimates provided in the Reilly case.

As part of the McClatchy deal, Hearst is buying the Monterey and St. Paul papers and then immediately turning over those papers MediaNews in exchange for a stake in that company’s operations outside California. The Justice Department said it may still investigate Hearst’s planned alliance with MediaNews.

McClatchy had to sell the St. Paul paper because it already owned the Minneapolis Star Tribune – a concentration of media power that wouldn’t pass muster with federal antitrust authorities. The company decided to sell 11 other Knight Rider papers, including the three California papers destined for MediaNews, after concluding they were unlikely to meet McClatchy’s growth requirements.

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