Hearst completes purchase of Chronicle, sale of Examiner

SAN FRANCISCO - The Hearst Corp. completed its $660 million purchase of the rival San Francisco Chronicle on Friday and kept its promise to sell its venerable San Francisco Examiner to a local publisher of free newspapers.

Hearst announced the changes in ownership a day after U.S. District Court Judge Vaughn Walker ruled out antitrust questions in Hearst's purchase of the Chronicle.

The judge also said that nothing in the law requires Hearst to give the Examiner - or its promised subsidy of $66 million over three years - to publisher Ted Fang, who is closely allied with Mayor Willie Brown and other Democratic politicians in the city.

The judge's ruling removed the pressure Hearst was under for months to come up with an alternative to closing down the Examiner. Hearst's lawyers initially reacted to the ruling by declining to commit to completing the deal with Fang, but Hearst said late Friday it would keep its promise.

''We had a contract with the Chronicle and a contract with the Fangs. We just completed them,'' Hearst spokeswoman Debra Shriver said.

In a statement, Fang said his family was ''proud to be the first Asian American family ever to own a daily newspaper in a major metropolitan city.''

''The new Examiner will see a flowering of journalistic excellence, liveliness and excitement. Under our leadership, the new Examiner will reflect the ethnic and political diversity of our unique city,'' Fang said. The Fangs own the newspapers Asian Week and the Independent.

In his ruling Thursday, Walker sharply criticized the Department of Justice's antitrust division, saying it appeared to have been swayed by political ''cronyism'' during its investigation of the newspaper ownership transfers.

''These allegations are completely unfounded,'' DOJ spokeswoman Gina Talamona told The Associated Press on Friday. ''An experienced team of Department of Justice career attorneys and economists conducted a thorough investigation of this case.''

Local real estate millionaire Clint Reilly, who spent more than $1 million pursuing his private antitrust lawsuit seeking to block the deal, succeeded in airing his concerns that Hearst is gaining a newspaper monopoly during a non-jury trial in May.

But Walker ultimately rejected Reilly's claims and said Hearst's purchase of the Chronicle ''would not create a monopoly, substantially lessen competition or unreasonably restrain trade.''

Reilly said Friday he was giving up the fight.

''After conferring all day with my lawyers ... I have concluded that likelihood of success on appeal is uncertain,'' Reilly said in a statement. ''Moreover, it would be unfair to the public and journalists of our city to leave this matter unresolved for the indefinite future.''

The May trial was the first to challenge the dissolution of a joint operating agreement between newspapers in federal court.

During the trial, Tim White, the Examiner's publisher, shocked the courtroom when he revealed that at a lunch meeting in August 1999, weeks after the purchase of the Chronicle had been announced, he offered Brown favorable treatment in editorials if the mayor would support the deal. White later recanted the statements.

Walker said that ''the cronyism that fueled the Fang transaction at the local level exerted influence over the DOJ investigation.''

Hearst officials testified that they felt giving the paper to Fang was the only way it get government approval for abolishing the joint operating agreement under which the Chronicle and Examiner have split profits 50-50 since 1965 while maintaining a fierce editorial rivalry.

But Walker ruled that the Chronicle-Hearst accord could go forward even if the Examiner is closed, and that furthermore, the Examiner giveaway may itself ''constitute a violation of the antitrust laws.''

Experts said the ruling places Hearst in a difficult position.

''It's a very odd arrangement indeed,'' said Ben Bagdikian, author of ''The Media Monopoly'' and former dean of the University of California, Berkeley journalism school.

Bagdikian suggested that, by helping Fang keep a much smaller, local version of the Examiner afloat, Hearst will more easily fend off circulation gains by Knight Ridder's San Jose Mercury News, which began publishing a San Francisco edition this week.

''Hearst has to worry that Knight Ridder is coming into the city. The existence of the Fangs makes Knight Ridder's prospects slightly more troublesome,'' he said.

The drama began in August 1999, when Hearst announced its purchase of the Chronicle, the second-largest newspaper in California and 12th largest in the nation. At the time, Hearst said it would sell or close the Examiner, one of the largest remaining afternoon papers, after 120 years of Hearst ownership.

Hearst said its agents later contacted more than 80 prospective buyers and found no one willing to pay for the money-losing Examiner.

After months of civic pressure to keep the Examiner alive, Hearst agreed to pay Fang the subsidy as well as support the Examiner during a four-month transition period. The Fang deal won high praise from the Justice Department, which found no antitrust violations and approved the dissolution of the JOA.

But Reilly sued to stop the sale, contending the transaction was designed to fail quickly and leave San Francisco with only one newspaper after more than a century of competition.