From The Wall Street Journal, July 31, 2000

Judge Excoriates Two Hearst Executives

By Peter Waldman
Staff Reporter of The Wall Street Journal

SAN FRANCISCO - Hearst Corp. now knows the agony of victory.

The New York media conglomerate got its wish Thursday when a federal judge here ruled that its $660 million acquisition of the San Francisco Chronicle newspaper and its transfer of the rival San Francisco Examiner to California's powerful Fang family don't violate antitrust laws.

The closely held company, which announced it completed both transactions Friday, also got its comeuppance: excoriation by U.S. District Judge Vaughn Walker, who concluded that Hearst's top two executives were far from credible.

Judge Walker's 46 page opinion had harsh words for nearly everyone involved. The judge lambasted the antitrust division of the Department of Justice for breaking with past practice and pushing Hearst, which couldn't find a buyer for a stripped-down Examiner, to bestow the 113-year-old paper, plus $66 million in cash, on the Fangs. That arrangement, which Hearst lawyers said at the trial was the result of political pressures, came after an elaborate lobbying campaign orchestrated by the Fangs to get control of the Examiner, which they intend to shrink to a much smaller paper. The judge called the Justice Department's role in promoting the Examiner giveaway "cronyism" and "political favoritism masquerading as law enforcement."

In Washington, Justice spokeswoman said the judge's criticism was "completely unfounded." Politics, she said, "played absolutely no role in this matter."

Most scathing were Judge Walker's findings concerning the testimony of Frank Bennack Jr., Hearst's chief executive, and George Irish, its chief operating officer. During the trial, both said they didn't know Examiner Publisher Timothy White offered favorable editorial-page treatment to Mayor Willie Brown in exchange for support of the Chronicle deal. Mr. White, after testifying about "horse trading," was placed on involuntary leave by Mr. Bennack.

Judge Walker cited internal Hearst e-mails and telephone notes showing Messrs. Bennack and Irish were kept well informed of Mr. White's efforts, as well as Mr. White's "forthright testimony and demeanor on the witness stand." The judge said Mr. White's behavior suggested he "did not expect such testimony would come as a surprise to his superiors."

The judge concluded that the top two executives had to have known very early on about Mr. White's dealings. Given the importance of the deal for the Chronicle, the judge said Messrs. Bennack and Irish "would have paid close attention to White's reports of his efforts to enlist local politicians."

Messrs. Bennack and Irish didn't return phone calls seeking comment. A Hearst spokeswoman called the judge's findings about the executives' testimony "quite unfair and 100% inaccurate." She reiterated Hearst's claim that Messrs. Bennack and Irish didn't read or absorb the information conveyed to them in Mr. White's e-mails and phone conversations; the first time the two learned of the wheeling and dealing, she said, was at the antitrust trial. She said Hearst has hired retired U.S. District Judge Charles Renfrew to investigate.

Friday, Judge Renfrew, now a mediator in San Francisco, said he was eager to read the findings of Judge Walker, a former colleague of Judge Renfrew's at the San Francisco law firm Pillsbury Madison & Sutro.

Meanwhile, as Hearst moves forward to combine the Examiner's staff of 217 reporters and editors with the Chronicle's 378 editorial employees, critics are wondering if the first heads to roll shouldn't come at the top. After all, staffers say, how often does a federal judge conclude that the top two executives of the nation's 12th-largest media concern weren't credible on the witness stand?

Messrs. Bennack and Irish met Friday with editors of both papers. Saturday's Examiner quoted Mr. Bennack promising to transform the Chronicle into a paper comparable to the Los Angeles Times, Washington Post, Chicago Tribune and New York Times.

Jack Doppelt, a professor of law and journalism at Northwestern University's Medill School of Journalism in Evanston, Ill., said Hearst "has a long way to go to regain credibility. Their board needs to take a hard look at the judge's opinion and decide, if the executives did lie, what to do about it."

A Hearst spokeswoman said Messrs. Bennack and Irish have "absolutely not" considered resigning in the wake of the judge's findings. Mr. Bennack is highly regarded among the Hearst heirs who control its stock, s well as among the nonfamily directors who comprise the majority of the board. Since taking the company's helm in 1979, Mr. Bennack has built Hearst into diversified media empire, with holdings in magazines, television and radio stations, book publishing and cable TV. (Hearst co-publishes two magazines with Dow Jones and Co., publisher of The Wall Street Journal.)

"I don't know why the board would substitute a judge's opinion of Frank Bennack for our own," said William Randolph Hearst III, a venture capitalist and Hearst director who admires the executive. Clint Reilly, who brought the suit against Hearst, said he wouldn't appeal the judge's decision - after Hearst agreed to pay him $2.5 million for legal fees.