updated 11/29/2006 8:22:58 AM ET 2006-11-29T13:22:58

Suspicious about a possible alliance among competitors, a federal judge barred The San Francisco Chronicle from consolidating some of its business operations with newspapers owned by MediaNews Group Inc.

U.S. District Judge Susan Illston issued the temporary restraining order Tuesday, upon seeing a previously undisclosed memo saying that the Chronicle's parent company, Hearst Corp., intended to collaborate with the newspaper's rivals on Bay Area distribution and national advertising sales.

The judge ruled the deal would possibly violate antitrust laws.

Joseph Lodovic, president of Denver-based MediaNews, said there have been no recent talks between the two companies, and the injunction "has no immediate effect whatsoever."

Paul Luthringer, a spokesman for New York-based Hearst, said the publisher had no comment.

Illston, however, was skeptical the two companies haven't been working together behind the scenes, saying in her ruling that "the parties have engaged in more than just an abstract agreement to negotiate at some later date."

MediaNews, which already owns the Oakland Tribune and seven other Bay Area newspapers, acquired the Monterey County Herald, San Jose Mercury News and Contra Costa Times from McClatchy Co. earlier this year. The complex $1 billion deal included $300 million in financing from the Hearst Corp., owner of the Chronicle.

In July, Illston let the deal go through, ruling against an antitrust lawsuit that claimed the deal would create a monopoly on readership and advertising in the region.

But the judge said she issued Tuesday's restraining order in light of the previously undisclosed letter, dated April 26, from Hearst Senior Vice President James Asher to Joseph Lodovic, president of MediaNews.

"The Hearst Corporation and MediaNews Group, Inc. agree that they shall negotiate in good faith agreements to offer national advertising and Internet advertising sales for their San Francisco Bay area newspapers on a joint basis," it reads, "and to consolidate the San Francisco Bay area distribution networks of such newspapers."

Illston wrote in her ruling that such agreements "increase the likelihood that the transactions at issue here were anticompetitive, and illegal."

San Francisco real estate magnate Clint Reilly filed the antitrust lawsuit seeking to block McClatchy's sale of the Bay Area papers to MediaNews, claiming it would create a monopoly on readership and advertising in the region.

"It's not just a smoking gun," Reilly's attorney, Joseph Alioto, said of the letter. "It's a picture of the bullet coming out of the nozzle."

Alioto said he recently discovered the letter while scouring boxes of documents in the case.

The judge said she previously "accepted defendants' representations that Hearst's involvement in the transactions was solely that of a passive equity investor."

"Though defendants offered no explanation why Hearst was willing to help finance an acquisition that would only make its competition stronger, the court did not understand that Hearst expected, or would later receive, any quid pro quo," Illston wrote.

Peter Scheer, executive director of the California First Amendment Coalition, speculated that Illston will eventually issue a permanent order blocking MediaNews and Hearst from cooperating in the ways the April 26 letter discusses.

"If that's the $64,000 question, the $65,000 question is: Does Hearst want to be in the deal with MediaNews, and does MediaNews want to be in with Hearst if they are barred by the judge from cooperating in those ways?" Scheer said.

Illston said Reilly's antitrust case will go to trial sometime in April 2007.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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