Judge Blocks Sale Of SF Chronicle

A federal judge on Thursday blocked the Hearst Corp.'s $660 million purchase of the San Francisco Chronicle, a century-long rival of Hearst's Examiner.

Hours after the U.S. Justice Department approved the sale, U.S. District Judge Vaughn Walker issued a temporary restraining order against the deal. Walker said serious questions had been raised about Â"the continuing viability of the Examiner as an independent newspaperÂ" under new ownership.

Hearst announced March 17 that it was transferring ownership of the Examiner, its 120-year-old flagship newspaper, to owners of the Independent, a local free-distribution paper. Hearst said it agreed to subsidize the owners with $66 million over three years after fruitless contacts with 80 potential buyers, including the nation's major newspaper publishers.

But political consultant Clint Reilly, who sued to stop Hearst from buying the Chronicle, argued that the subsidy was far too small to keep the Examiner alive and would leave Hearst with a local newspaper monopoly.

After a 40-minute hearing, Walker said Reilly had raised a serious enough issue to delay the purchase until April 13, when a hearing is scheduled on a preliminary injunction that would stay in effect until the suit went to trial.

The Chronicle is the largest newspaper in Northern California and the 13th-largest in the nation, with circulation of 456,000 compared to the Examiner's 107,000.

The two newspaper deals had been scheduled to close Friday, but Walker said the Chronicle and Examiner have been publishing under a joint operating agreement since 1965 and would suffer little hardship by waiting another two weeks.

The Independent's publisher, Ted Fang, has announced plans to switch the Examiner from afternoon to morning publication in August and compete with the Hearst-owned Chronicle.

Under the joint operating agreement, which was scheduled to run through 2005, the Examiner and Chronicle have combined their business operations and split profits while maintaining separate editorial staffs. The sale would terminate the JOA.

The Justice Department said Thursday that its concerns about competition were satisfied by Hearst's agreement to transfer the Examiner to owners who would continue daily publication.

Â"For the first time in 35 years, San Francisco will have two independent daily newspapers,Â" said Antitrust Division head Joel Klein. Â"Consumers, such as advertisers and readers, will obtain the benefits of full competition between two daily morning papers.Â"

San Francisco remains one of 47 cities in the nation with two or more dailies.

But Reilly, who ran unsuccessfully for mayor last fall and also bid unsuccessfully for the Examiner, contended the terms of the deal guaranteed failure for the Examiner.

Reilly said experts in newspaper operations and finance have advised him that a subsidy of at least $250 million was needed to make the xaminer a viable competitor. He accused Hearst of using the joint operating agreement to fend off other bidders for the Chronicle, who offered far less than $660 million because they would have had to assume the Chronicle's obligations under the JOA.