Justice Department approves sale of San Jose Mercury news and Contra Costa Times newspapers

By Julia Cheever, Bay City News Service

July 31, 2006

The U.S. Justice Department today approved the McClatchy Co.'s planned sale of the San Jose Mercury News and Contra Costa Times to Denver-based MediaNews Group Inc.

The department announced it has closed an antitrust investigation after determining that "the transaction is not likely to reduce competition substantially."

The sale is part of a complex $1 billion deal in which Sacramento-based McClatchy would transfer a total of four newspapers to MediaNews.

The newspapers are the Mercury News, Contra Costa Times, Monterey County Herald and St. Paul Pioneer Press of Minnesota. McClatchy acquired the papers as part of its $4 billion purchase of San Jose-based Knight Ridder Inc. earlier this year.

The Justice Department is the second legal hurdle that the transaction has passed.

On Friday evening, a federal judge in San Francisco refused to issue a temporary restraining order that would have blocked the sale for 10 days. The order was requested in an antitrust lawsuit filed by San Francisco businessman Clint Reilly.

A separate antitrust investigation by California Attorney General Bill Lockyer remains open, according to Lockyer spokesman Tom Dresslar. MediaNews owns eight other newspapers in the East Bay, South Bay and North Bay.

The Justice Department reported its antitrust investigation focused on the transaction's effects on competition in the East Bay, where MediaNews's Alameda News Group includes the Oakland Tribune, Tri-Valley Herald, Daily Review and Fremont Argus. The group also encompasses the San Mateo County Times.

The department stated it found that "only a relatively small number of readers and advertisers view MediaNews' papers, on the one hand, and the Contra Costa Times and Mercury News, on the other hand, as substitutes."

It also said the MediaNews papers will continue to face competition from the San Francisco Chronicle, which is owned by Hearst Corp.

In a second possible transaction that has not yet been negotiated, Hearst might acquire an investment in MediaNews operations outside of California. The stake would be in exchange for Hearst's aid to MediaNews in financing the purchase of the Monterey and St. Paul newspapers.

The Justice Department reported its antitrust division did not address that possible transaction, but stated, "If and when any such arrangement is proposed, the division will investigate whether it would adversely affect competition."

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