Community Publishers, Inc. v. Donrey Corp.

CourtUnited States District Courts. 8th Circuit. Western District of Arkansas
Citation892 F. Supp. 1146
Docket Number95-5048.,No. 95-5026,95-5026
PartiesCOMMUNITY PUBLISHERS, INC.; and Shearin Inc. d/b/a Shearin & Company Realtors, Plaintiffs, v. DONREY CORP. d/b/a Donrey Media Group; NAT, L.C.; Thomson Newspapers, Inc.; and the Northwest Arkansas Times, Defendants. UNITED STATES of America, Plaintiff, v. NAT, L.C. and D.R. Partners d/b/a Donrey Media Group, Defendants.
Decision Date30 June 1995

COPYRIGHT MATERIAL OMITTED

Philip S. Anderson, Peter G. Kumpe, J. Leon Holmes, Jeanne L. Seewald, Williams and Anderson, Little Rock, AR, Tom Burke, Burke & Eldridge, Fayetteville, AR, for Community Publishers, Shearin Inc.

Anne K. Bingaman, Constance K. Robinson, Craig W. Conrath, Allee A. Ramadhan, Phillip R. Malone, Burney P.C. Huber, Nora W. Terres, Anne M. Purcell, Alexander Y. Thomas, Brigid L. Kerrigan, U.S. Dept. of Justice, Washington, DC, Larry McCord, Asst. U.S. Atty., Fort Smith, AR, for U.S.

Jerry C. Jones, Kenneth Shemin, Amy Lee Stewart and Grant Fortson, Rose Law Firm, Little Rock, AR, Woody Bassett, Bassett Law Firm, Fayetteville, AR, for NAT, L.C.

James M. Dunn, Warner, Smith & Harris, Fort Smith, AR, for Donrey.

William J. Butt, Timothy E. Howell, Davis, Cox & Wright, Fayetteville, AR, Jeremy Epstein, Shearman & Sterling, New York City, for Thomson Newspapers.

MEMORANDUM OPINION

H. FRANKLIN WATERS, Chief Judge.

This is a consolidated antitrust case in which the United States and private plaintiffs are challenging the purchase of a local daily newspaper, the Northwest Arkansas Times ("the Times"), by NAT, L.C. Both the government and private plaintiffs contend that this purchase may substantially lessen competition, since NAT, L.C. ("NAT"), has significant shareholders in common with defendant D.R. Partners d/b/a Donrey Media Group ("Donrey"), which owns a competing local daily newspaper, the Morning News of Northwest Arkansas ("Morning News").

Private plaintiffs and the government both claim that the acquisition violates Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 7 of the Clayton Act, 15 U.S.C. § 18. Private plaintiffs seek injunctive relief under Section 16 of the Clayton Act, 15 U.S.C. § 26; while the government seeks such relief under Section 15 of the Clayton Act, 15 U.S.C. § 25. Private plaintiffs alone bring claims alleging that: (1) NAT's acquisition of the Times violates Section 2 of the Sherman Act, 15 U.S.C. § 2, which prohibits monopolization and attempts to monopolize; (2) NAT and Donrey have interlocking directorates in violation of Section 8 of the Clayton Act, 15 U.S.C. § 19; (3) NAT and Donrey violated the notice provisions of the Hart-Scott-Rodino Act, Section 7A of the Clayton Act, 15 U.S.C. § 18a, which requires government notification of certain acquisitions, which was not done in this case.

As will be explained below, the court will find that the challenged acquisition violates Section 7 of the Clayton Act, and it will be unnecessary to judge the transaction under Sections 1 and 2 of the Sherman Act. It will also be unnecessary to reach private plaintiffs' claims arising under Section 7A of the Clayton Act concerning Hart-Scott-Rodino notification and Section 8 of the Clayton Act concerning interlocking boards and directorates.

I. THE PARTIES AND OTHER INTERESTED BYSTANDERS

Thomson Newspapers, Inc. ("Thomson") owned the Northwest Arkansas Times ("the Times"), a local daily newspaper that competes in the Northwest Arkansas market, until February 6, 1995, when it sold the property to NAT.

NAT, L.C. ("NAT") is a limited liability company formed to acquire the Times from Thomson.1 Various Stephens family trusts own ninety-five percent (95%) of NAT's stock, and Jack Stephens is NAT's chairman. The Stephens family business began with the partnership of two brothers, Jack Stephens and Witt Stephens, who went on to build the largest investment banking firm off Wall Street. Stephens family assets are now dispersed among Jack Stephens, his son (Warren Stephens), his brother Witt Stephen's widow (Bess Stephens), and her three children (W.R. Stephens, Jr., Pamela Stephens Rose and Elizabeth Ann Stephens Campbell).

D.R. Partners d/b/a Donrey Media Group ("Donrey") is a general partnership which owns the Morning News of Northwest Arkansas ("the Morning News"), which competes in the same local daily newspaper market as the Times.

Stephens Group, Inc. ("SGI") owns ninety-nine percent (99%) of Donrey's stock, and the additional one percent is held by Stephens Holding, Inc. SGI is owned entirely by Stephens family trusts. Jack Stephens is chairman of both Donrey and SGI.

Community Publishers, Inc ("CPI") publishes the Benton County Daily Record ("the Daily Record"), which also competes in the local daily newspaper market of Northwest Arkansas. CPI is owned by Jim Walton, the son of Sam Walton, founder of WalMart Stores, the country's largest and most successful retailer.2 CPI also sought to purchase the Times from Thomson in partnership with WEHCO Media. WEHCO Media is owned by Walter Hussman, and it publishes the Arkansas Democrat-Gazette, a statewide newspaper out of Little Rock. It is the only Arkansas daily newspaper with statewide circulation. The Arkansas Democrat-Gazette is a merger of two formerly competing statewide newspapers, the Arkansas Democrat and the Arkansas Gazette, which conducted a newspaper war to the death in the 1980's. At that time the Gazette was owned by Gannett, a large nationwide newspaper chain which publishes USA Today along with numerous other newspapers spread across the United States.

Shearin, Inc. d/b/a Shearin & Company Realtors ("Shearin") is a real estate brokerage firm with its principal office in Rogers and a branch office in Bentonville. It advertises regularly in both the Morning News and the Daily Record.

II. NAT's ACQUISITION OF THE TIMES

The court will begin by outlining the events leading up to NAT's acquisition of the Times, because it is useful in showing the noncompetitive manner in which the Stephens family does business together and the relationship between their companies, NAT and Donrey. The acquisition history is also useful in explaining the role of Thomson in closing the deal despite the existence of substantial antitrust questions, which will be relevant to the way the court shapes its remedy.

Donrey had historically expressed interest in acquiring the Times.3 In September 1994, Emmett Jones, Donrey's President and Chief Operating Officer, met with Robert Daleo, Thomson's Chief Financial Officer, at the Dallas-Fort Worth Airport. Daleo asked Jones whether Donrey would sell the Morning News; while Jones asked Daleo whether Thomson would sell the Times. Both parties were ready to buy, but neither party was willing to sell. Apparently each party wanted the operational synergies and obvious competitive advantages that would accompany owning all three daily local newspapers in Northwest Arkansas.

In November 1994, Donrey was again involved in negotiations where it sought to acquire the Times from Thomson. The deal involved a three-way exchange, whereby Donrey would convey a certain media property to a third party, which would then convey other media properties to Thomson, which would then convey the Times to Donrey. The deal fell through when the third party backed out.

In January 1995, Donrey made its final attempt to acquire the Times. On January 19th, Thomson publicly announced its intention to sell the Times. Thomson also announced its intention to sell twenty-four other United States newspapers in a package deal. Thomson did not include the Times in the package of twenty-four newspapers as it felt that the Times was more valuable and because various entities had already expressed interest in it, including Donrey and CPI. Thomson stated bids for the Times should be received by February 8, 1995, but Thomson reserved the right to sell the Times before that date.

On January 19 or 20, 1995, Jones called Daleo to get the bid package and to set up a Donrey-Thomson meeting. With regard to the purchase price, Daleo told Jones that Thomson wanted approximately fifteen times earnings or twenty million dollars for the Times. The twenty million dollar figure was based on in-house financial analyses performed by Thomson which assumed that the purchaser would combine the Times with one or more newspapers and achieve "operational synergies."4 A much lower purchase price resulted from Thomson's "stand-alone" analysis, which projected the value of the paper as though it would be owned and operated as an independent entity. Jones, who likely presumed operational synergies for Donrey, testified that he would have valued the Times at between twenty and thirty million dollars.

Soon after Thomson put the Times up for sale, Jack Stephens and his executive assistant, Scott Ford, who is also a vice-president of Donrey, became directly involved. On January 23 and 24, 1995, there were meetings with attorneys in which they discussed legal aspects of purchasing the Times "a good bit," to quote the testimony of Jack Stephens. Over the course of these meetings, Jack Stephens decided that he would purchase the Times through NAT rather than through Donrey. However, Donrey officials were not consulted or apprised of the decision when it was made.

According to Jack Stephens, he decided on a NAT purchase of the Times primarily due to his interest in the Fayetteville community and his desire for a more hands-on opportunity for members of his family and high level SGI officers. He stated further that a Donrey purchase would not have accomplished this goal, because Donrey's management and operations structure was already in place when purchased by the Stephens family in August 1993. Thus, a Donrey purchase would not have allowed Stephens family members and personnel to be as involved in the daily operation of the Times as Jack Stephens wanted them to be.

On January 24, 1995, there was a...

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