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Anatomy of a Mau-Mau

Wednesday, Mar 22 2000
I like the idea behind the purchase of the Hearst Corp.'s San Francisco Examiner by the Fang family, which owns the San Francisco Independent. It's just the kind of business opportunity I've been looking for, and I am hereby putting in my bid to acquire the San Francisco Chronicle in the same way.
By writing this column, I agree to let the Chronicle be conveyed to me, and to run it forever, once its owner, the Hearst Corp., gives me the newspaper for a nominal fee, and then hands me the millions upon millions of dollars that will be necessary to operate it. And then gets lost.

I expect my acquisition of the Chronicle to start a trend. "Negative purchasing" of media assets will sweep the country. It will end only after the pleasant homeless guy who sits against the front of Sam's Bodega at 20th and Valencia accepts $1 billion to take AOL Time Warner off AOL Time Warner's hands.

The insulting phony corruptive absurdity of the Hearst Corp.'s "sale" of the Examiner to the Fang family is impossible to overstate. But let me try; by aiming way up over the top, I might get somewhere near the awful truth of this monumental charade.

The fundamentals of the deal appear to stack up this way: On Friday, the Hearst Corp. agreed to pay the Fang family millions of dollars over three years to take the Examiner, and run it in competition against the Chronicle, which Hearst is acquiring.

This give-the-buyer-wads-of-cash "sale" may seem strange to you, even though you live in San Francisco, where denying the ordinary workings of commerce is a hallowed tradition. Because I have observed the intersections of politics and business for some 20 years now, this arrangement has a stronger effect on me. To me, it looks strange in the particular, San Francisco Democratic machine way that always raises the question: So how far are they pushing the unlubricated broomstick up inside us this time?

A couple of feet, I'd guess.

But I'd have to guess, because the most absurd component of this "sale" is the secrecy that surrounds it. Here, supposedly, we have the sale of a major daily newspaper, whose fate has been the subject of public controversy. The sale supposedly is a way to preserve San Francisco as a two-daily town, to obliterate antitrust concerns surrounding the pending acquisition of the morning Chronicle by Hearst, which also owned the afternoon Examiner. In other words, the rationale for the sale is supposed to be one of public interest -- protecting San Francisco from the evils that attend a one-daily monopoly. The sale involves two companies that publish newspapers, and that should, therefore, cherish the free flow of information.

So, of course, neither Hearst nor the Fangs were giving out the important details of the deal as it was announced last week.

A new Fang company called ExIn LLC apparently is to pay something to Hearst for the Examiner. How much? And who constitutes ExIn LLC? Well, Hearst wasn't saying. Ted Fang, the publisher of the Independent, didn't return my phone calls, and I haven't seen him quoted anywhere as to the amount, or the makeup, of the new Examiner owner-to-be. (A Chronicle story quoted anonymous sources to the effect that the amount was "nominal.")

The Hearst press release on the "sale" said the company would make a "significant financial commitment" to the new owners over some vague period of time. That time period was initially announced as three years, but a Hearst spokesman refused to say how much a "significant" financial commitment might be, or to confirm a time period, or to explain why the sellers of a newspaper were paying the buyers, rather than the other way around. The spokesman even declined to say why there was so much secrecy about the deal. "No one's asked that question," he said, before explaining that no one at Hearst was answering it, either. (A Chronicle story quoted anonymous sources as saying Hearst would provide the Fangs $25 million a year over as much as three years.)

Even though the players in this deal have provided little information, what has transpired here seems illogical, even idiotic, if looked at through a normal business prism. That's probably because this is not a normal business transaction.

The Hearst Corp. announced in August that it had agreed to buy the Chronicle, for a reported $660 million; the antitrust experts at the U.S. Justice Department needed to approve the purchase, because Hearst already owned the Examiner. In theory, Justice could have balked if Hearst had simply closed the shrinking, money-losing Examiner, ending the joint operating agreement under which the Ex and Chron had cooperatively published and creating a one-paper Chron monopoly. So Hearst put the Examiner up for sale, first in a farce of an offering that included few of the assets necessary for the Ex to continue publishing, and then a second time, in a more realistic sale package.

Supposedly, the Fangs won out in the bidding on this latter package. That is -- supposedly -- the Fangs made the best of all offers submitted for the Examiner.

But if we are to believe what has been reported about this transaction, the Fangs didn't buy the Examiner, in a normal sense -- they agreed to be paid a lot of money to take a portion of its assets that did not include real estate or printing presses. If this is the case, and if the Fangs' offer really were the best to be presented to Hearst, then there most likely would be no legal grounds requiring the deal to happen. Antitrust law might require Hearst to sell the Examiner to a legitimate bidder willing to pay a legitimate price, as a way of fostering continued competition in the San Francisco newspaper market; I can imagine no legal requirement that the Hearst Corp. subsidize -- to the tune of $75 million -- a newspaper with which its new Chronicle would compete.

About The Author

John Mecklin


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