CHARLESTON, W.Va.-
The U.S. Department of Justice moved Tuesday to reverse the sale of the Charleston Daily Mail to the Daily Gazette Co., saying a 2004 agreement to purchase the city’s afternoon newspaper violated antitrust laws.
The filing seeks to restore the competition that existed between the city’s two daily newspapers before May 7, 2004, when the Daily Gazette Co. purchased control of the Daily Mail from Denver-based ap Inc. The Daily Gazette operates the city’s morning newspaper, The Charleston Gazette.
Prior to the sale, the two newspapers were operated by Charleston Newspapers under a joint operating agreement.
“When Daily Gazette Company acquired the Daily Mail with the aim of shutting it down, readers in the Charleston area, and the advertisers who value access to them, were denied the benefits of competition,” Thomas O. Barnett, an assistant attorney general in the DOJ’s Antitrust Division, said in a prepared statement.
“The Department’s investigation saved the Daily Mail from this unlawful termination, and this action seeks to remedy the competitive damage already done and to prohibit the parties from resuming an anticompetitive course in the future,” he said.
Daily Gazette Co. President Elizabeth E. Chilton called the action ‘inexplicable.”
“The Gazette knows of no law that has been violated,” Chilton said in a statement. “Because the Justice Department refused to share a copy of the lawsuit with us in advance, we cannot comment in more detail on its allegations at this time, but the Gazette will respond forcefully in court to protect its distinct West Virginia voice.”
MediaNews said there was no basis for the DOJ’s action. The JOA was amended in 2004 “to address the deadlocks and competitive inertia caused by its 50/50 structure,” the company said.
“We strongly disagree with the Department’s position and the actions taken today,” Joseph Lodovic, president of ap, said in a statement. “The Department’s contention that the parties competed outside the JOA prior to the 2004 amendment shows that it does not understand how JOA’s are structured and how they operate. The parties have never done that.”
Stephen Barnett, a law professor emeritus at the University of California Berkeley, said it’s rare for the Justice Department to meddle in newspaper mergers.
“If you do have a valid anti-merger claim, the only remedy is to unscramble the eggs,” Barnett said.
The suit alleges three antitrust violations.
The first argues the transaction resulted in a monopoly over the sale of daily papers and advertising in Charleston. The second argues the transaction eliminated the incentives and ability of MediaNews to compete with the Gazette. The third argues the Gazette will continue to maintain unlawful monopoly power.
The two newspapers had operated under a JOA since 1958. MediaNews purchased the Daily Mail in September 1998 from Thomson Newspapers. The DOJ said the May 2004 agreement “does not meet the statutory definition of a JOA under Newspaper Preservation Act” and does not give the deal immunity from antitrust laws.
MediaNews owned the paper until May 2004, when it sold the paper to the Daily Gazette Co. for $55 million. Under the terms of the sale, MediaNews provides “management and supervision” to the Daily Mail in exchange for a fee paid by the Daily Gazette Co. MediaNews no longer shares in the newspaper’s profits.
“In reality, however, the news and editorial assets and resources of the Charleston Daily Mail are under the ownership and control of the Gazette Company,” the DOJ said in its filing.
Lodovic said MediaNews continues to maintain editorial control over the Daily Mail.
“The Daily Mail and The Gazette have remained as journalistically competitive as ever, and the people in Charleston continue to benefit from the choice of two fine newspapers. The Department’s attack on the JOA undermines rather than promotes newspaper competition in Charleston,” he said.
After obtaining control of the Daily Mail, the DOJ said the Daily Gazette Co. “developed a plan to shut down the Charleston Daily Mail.” The plan, developed with a consultant and the company’s lenders, called for a “rapid reduction” of the Daily Mail’s circulation to make the newspaper no longer economically viable so it could be closed without the DOJ’s objection.
The Daily Gazette Co. halted delivery to thousands of customers, discontinued publishing a Saturday edition and cut the editorial budget by almost half, forcing reporters to leave the newspaper, the DOJ’s filing said.
As a result of the Daily Gazette Co.’s actions, the Daily Mail’s daily circulation plummeted from 35,076 in February 2004 to 23,985 in January 2005, the filing said.
The DOJ said if the sale is upheld, it would lessen competition in the Charleston market and give the Daily Gazette a monopoly.
