Daily Court Transcripts
May 04, 2000
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1 VOLUME 4
2 PAGES 669 - 824
3 UNITED STATES DISTRICT COURT
4 NORTHERN DISTRICT OF CALIFORNIA
5 BEFORE THE HONORABLE VAUGHN R. WALKER, JUDGE
6 CLINTON REILLY, )
)
7 PLAINTIFF, )
)
8 VS. ) NO. C 00-0119 VRW
)
9 THE HEARST CORPORATION, )
ET AL., )
10 )
DEFENDANTS. )
11 ____________________________)
SAN FRANCISCO, CALIFORNIA
12 THURSDAY, MAY 4, 2000
13 TRANSCRIPT OF PROCEEDINGS
APPEARANCES:
14 FOR PLAINTIFF: JOSEPH M. ALIOTO LAW FIRM
ONE EMBARCADERO CENTER, SUITE 4000
15 SAN FRANCISCO, CALIFORNIA 94111
BY: JOSEPH M. ALIOTO
16 ANGELINA ALIOTO-GRACE
ATTORNEYS AT LAW
17
SHULMAN, WALCOTT & SHULMAN, P.A.
18 121 WEST FRANKLIN AVENUE
MINNEAPOLIS, MINNESOTA 55404
19 BY: DANIEL R. SHULMAN
JAMES HILBERT
20 ATTORNEYS AT LAW
21 (APPEARANCES CONTINUED ON FOLLOWING PAGE)
22 REPORTED BY: JO ANN BRYCE, CSR, RMR, CRR, FCRR
JUDITH N. THOMSEN, CSR, RMR, FCRR
23 OFFICIAL REPORTERS, USDC
24 COMPUTERIZED TRANSCRIPTION BY ECLIPSE
25 670
1 APPEARANCES: (CONTINUED)
2 FOR DEFENDANT SHEPPARD, MULLIN, RICHTER & HAMPTON
HEARST CORPORATION: FOUR EMBARCADERO CENTER, 17TH FLOOR
3 SAN FRANCISCO, CALIFORNIA 94111
BY: GARY L. HALLING
4 THOMAS D. NEVINS
ATTORNEYS AT LAW
5
BAKER & HOSTETLER LLP
6 1050 CONNECTICUT AVE., N.W.
SUITE 1100
7 WASHINGTON, D.C. 20036
BY: GERALD A. CONNELL
8 ATTORNEY AT LAW
9 FOR DEFENDANT LATHAM & WATKINS
CHRONICLE PUBLISHING 505 MONTGOMERY STREET
10 COMPANY: SUITE 1900
SAN FRANCISCO, CALIFORNIA 94111
11 BY: PETER K. HUSTON
J. THOMAS ROSCH
12 GREGORY P. LINDSTROM
ATTORNEYS AT LAW
13
FOR INTERVENOR- MC CUTCHEN, DOYLE, BROWN & ENERSEN
14 DEFENDANT EXIN, LLC: THREE EMBARCADERO CENTER, SUITE 1800
SAN FRANCISCO, CALIFORNIA 94111
15 BY: DAVID M. BALABANIAN
CHRISTOPHER B. HOCKETT
16 ATTORNEYS AT LAW
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25 671
1 I N D E X
2
3 PLAINTIFF'S WITNESSES PAGE VOL.
4
ASHER, JAMES
5 DIRECT EXAMINATION BY MR. ALIOTO 800 4
6
DEFENDANTS' WITNESSES PAGE VOL.
7
8 GREENTHAL, JILL
DIRECT EXAMINATION BY MR. LINDSTROM 673 4
9 CROSS-EXAMINATION BY MR. ALIOTO 727 4
10
E X H I B I T S
11
12 PLAINTIFF'S EXHIBITS W/DRAWN IDEN EVID VOL.
13 134 775 4
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25 672
1 THURSDAY, MAY 3, 2000 8:40 A.M.
2 THE CLERK: CALLING CIVIL 2000-119, CLINTON REILLY
3 VS. THE HEARST CORPORATION, ET AL., FOR A CONTINUED BENCH
4 TRIAL.
5 COUNSEL, YOUR APPEARANCES FOR THE RECORD, PLEASE.
6 MR. HALLING: GARY HALLING FOR THE HEARST
7 CORPORATION.
8 MR. LINDSTROM: GREG LINDSTROM FOR CHRONICLE
9 PUBLISHING.
10 MR. HOCKETT: CHRISTOPHER HOCKETT FOR EXIN, LLC.
11 MR. ALIOTO: JOSEPH ALIOTO FOR THE PLAINTIFF.
12 THE COURT: VERY WELL. GOOD MORNING, COUNSEL.
13 MR. LINDSTROM: GOOD MORNING, YOUR HONOR.
14 THE COURT: WE ARE READY, OF COURSE, FOR THE NEXT
15 WITNESS. AND I UNDERSTAND THIS IS GOING TO BE A CHRONICLE
16 WITNESS OUT OF ORDER.
17 IN TERMS OF OUR SCHEDULE TODAY, I WOULD LIKE TO SEE
18 IF WE CAN ADJOURN IN THE NEIGHBORHOOD OF 12:30. I HAVE SOME
19 MATTERS ON THE CALENDAR THIS AFTERNOON THAT ARE IMPORTANT THAT
20 NEED TO BE ADDRESSED. I AM NOT GOING TO RING THE BELL RIGHT AT
21 THAT HOUR OR ANYTHING OF THAT KIND, AND I UNDERSTAND THAT WE
22 MAY NOT BE ABLE TO MEET THAT, BUT THAT'S MY OBJECTIVE FOR YOUR
23 THINKING ON THE PROCEEDINGS TODAY.
24 ALL RIGHT. YOUR WITNESS?
25 MR. LINDSTROM: GREG LINDSTROM, YOUR HONOR, FOR 673
1 CHRONICLE PUBLISHING.
2 THE COURT: YES, MR. LINDSTROM.
3 MR. LINDSTROM: MAY IT PLEASE THE COURT, AT THIS
4 TIME WE WOULD LIKE TO CALL TO THE STAND JILL GREENTHAL.
5 THE COURT: VERY WELL.
6 JILL GREENTHAL,
7 CALLED AS A WITNESS FOR THE DEFENDANT, HAVING BEEN DULY SWORN,
8 TESTIFIED AS FOLLOWS:
9 THE CLERK: THANK YOU. PLEASE BE SEATED.
10 PLEASE STATE YOUR FULL NAME AND SPELL YOUR LAST FOR
11 THE RECORD.
12 THE WITNESS: JILL ANN GREENTHAL, G-R-E-E-N-T-H-A-L.
13 MR. LINDSTROM: MAY I PROCEED, YOUR HONOR?
14 THE COURT: YOU MAY, INDEED.
15 DIRECT EXAMINATION
16 BY MR. LINDSTROM:
17 Q. WHERE DO YOU RESIDE?
18 A. IN BOSTON, MASSACHUSETTS.
19 Q. WHAT IS YOUR CURRENT OCCUPATION OR EMPLOYMENT?
20 A. INVESTMENT BANKER.
21 Q. WITH WHAT FIRM?
22 A. DONALDSON, LUFKIN & JENRETTE.
23 Q. IS THAT FIRM COMMONLY KNOWN AND REFERRED TO AS "DLJ"?
24 A. YES.
25 Q. WHAT IS YOUR POSITION? 674
GREENTHAL - DIRECT / LINDSTROM
1 A. I AM A MANAGING DIRECTOR AND I AM A CO-HEAD OF THE BOSTON
2 OFFICE FOR THE FIRM.
3 Q. FOR HOW LONG HAVE YOU BEEN IN THE INVESTMENT BANKING
4 FIELD?
5 A. FOR APPROXIMATELY 17 YEARS.
6 Q. AND PRIOR TO ENTERING THE INVESTMENT BANKING FIELD, DID
7 YOU ATTEND GRADUATE SCHOOL?
8 A. YES.
9 Q. WHERE?
10 A. HARVARD BUSINESS SCHOOL.
11 Q. DID YOU OBTAIN AN MBA DEGREE FROM HARVARD?
12 A. YES.
13 Q. IN WHAT YEAR?
14 A. 1983.
15 Q. AND HAVE YOU CONTINUOUSLY BEEN IN THE INVESTMENT BANKING
16 FIELD SINCE GRADUATING FROM HARVARD IN 1983?
17 A. YES.
18 Q. DO YOU SPECIALIZE IN ANY PARTICULAR AREA OF INVESTMENT
19 BANKING?
20 A. YES, I DO.
21 Q. AND WHAT IS THAT AREA?
22 A. IN MEDIA AND TELECOMMUNICATIONS.
23 Q. FOR HOW LONG HAVE YOU BEEN WORKING IN THIS AREA?
24 A. FORMALLY SINCE 1985 AND ABOUT HALF OF MY TIME PRIOR TO
25 THAT. 675
GREENTHAL - DIRECT / LINDSTROM
1 Q. CAN YOU GIVE THE COURT ANY KIND OF AN ESTIMATE OF THE
2 NUMBER OF MEDIA-RELATED TRANSACTIONS IN WHICH YOU'VE PERSONALLY
3 BEEN INVOLVED?
4 A. I DON'T KNOW WHAT THE NUMBER WOULD BE, BUT IT'S SEVERAL
5 HUNDRED.
6 Q. WHAT PERCENTAGE OF THOSE WOULD INVOLVE THE NEWSPAPER
7 INDUSTRY IN SOME CAPACITY?
8 A. AGAIN, THIS IS A GUESS ON MY PART, BUT IT WOULD BE
9 SOMEWHERE IN THE SORT OF TEN-PLUS PERCENTAGE AREA, 10 TO
10 20 PERCENT.
11 Q. AT SOME POINT WAS YOUR --
12 THE COURT: TEN TO 20 PERCENT OF A HUNDRED PLUS?
13 THE WITNESS: YES. I AM GIVING A ROUGH FEEL FOR IT.
14 IT HAS BEEN A 17-YEAR CAREER.
15 THE COURT: BUT A SUBSTANTIAL NUMBER.
16 THE WITNESS: A FAIR NUMBER.
17 THE COURT: FAIR NUMBER.
18 BY MR. LINDSTROM:
19 Q. AT SOME POINT WAS DLJ RETAINED BY CHRONICLE PUBLISHING?
20 A. YES.
21 Q. AND WERE YOU PERSONALLY THE LEAD PARTNER ON THIS
22 ENGAGEMENT?
23 A. YES, I WAS.
24 Q. AND WITHIN DLJ DID THIS ENGAGEMENT COME TO BE KNOWN AS
25 PROJECT GOLDEN? 676
GREENTHAL - DIRECT / LINDSTROM
1 A. YES.
2 Q. WHAT WAS YOUR INITIAL ASSIGNMENT?
3 A. WE WERE INITIALLY HIRED BY THE COMPANY TO HELP THEM
4 EVALUATE ALTERNATIVES WITH REGARD TO THE SHAREHOLDERS'
5 ALTERNATIVE, THEIR INVESTMENT IN THE COMPANY, WHAT THEY SHOULD
6 DO WITH THAT INVESTMENT.
7 Q. AT THAT PARTICULAR POINT WAS DLJ ASKED TO SELL OR ATTEMPT
8 TO SELL ANY PROPERTIES OWNED BY CHRONICLE PUBLISHING?
9 A. AT THAT POINT, NO, WE WERE NOT.
10 THE COURT: NOW, WHICH POINT WAS THIS? LET'S PIN IT
11 DOWN BY TIME.
12 THE WITNESS: IN THE INITIAL STAGE OF THE
13 ASSIGNMENT, WHICH --
14 THE COURT: WELL, WHEN WAS THE COMPANY RETAINED?
15 THE WITNESS: I DON'T KNOW THE EXACT DATE, BUT OUR
16 INITIAL ENGAGEMENT LETTER, I THINK, WAS DATED SOMETIME IN
17 FEBRUARY.
18 THE COURT: FEBRUARY?
19 THE WITNESS: YES.
20 BY MR. LINDSTROM:
21 Q. OF 1999?
22 A. CORRECT.
23 Q. NOW, DID YOUR EVALUATION INVOLVE ALL OF THE PROPERTIES OF
24 THE COMPANY OR JUST THE CHRONICLE?
25 A. ALL OF THEM. 677
GREENTHAL - DIRECT / LINDSTROM
1 Q. WHAT PROPERTIES DID THE CHRONICLE PUBLISHING OWN AT THAT
2 TIME?
3 A. CHRONICLE PUBLISHING OWNED THE CHRONICLE NEWSPAPER IN SAN
4 FRANCISCO, THE SF GATE, KRON, WHICH IS THE NBC AFFILIATE IN SAN
5 FRANCISCO, TWO TELEVISION STATIONS IN NEBRASKA, TWO OTHER
6 NEWSPAPERS, ONE IN WOOSTER, MASSACHUSETTS, THE OTHER ONE IN
7 BLOOMINGTON, ILLINOIS, AND TWO PUBLISH -- BOOK PUBLISHING
8 COMPANIES, PLUS BAY T.V. SO THERE ARE QUITE A NUMBER OF
9 PROPERTIES.
10 Q. YOU MENTIONED THAT YOUR ASSIGNMENT WAS TO EVALUATE THE
11 VARIOUS OPTIONS OPEN TO THE SHAREHOLDERS.
12 WHAT OPTIONS DID YOU EVALUATE?
13 A. WE LOOKED AT A NUMBER OF DIFFERENT ALTERNATIVES. AND I AM
14 NOT SURE I AM GOING TO GIVE YOU AN EXHAUSTIVE LIST. BUT WE
15 BASICALLY LOOKED AT ALTERNATIVES FROM A SALE OF ALL OF THE
16 COMPANIES TO PART OF THE COMPANY TO POTENTIALLY RECAPITALIZING
17 THE COMPANY, PAYING -- YOU KNOW, CHANGING THE DIVIDEND STREAM
18 TO THE SHAREHOLDERS. WE LOOKED AT POTENTIALLY TAKING THE
19 COMPANY PUBLIC. AND PART OF THE ANALYSIS -- PART OF WHAT WENT
20 THROUGH THE ANALYSIS WAS ALSO RENEGOTIATION OF THE JOA.
21 THE COURT: MAYBE IT WOULD BE HELPFUL BY WAY OF
22 FOUNDATION TO EXPLAIN WHY IT IS THAT THIS EVALUATION WAS
23 UNDERTAKEN IN THE FIRST INSTANCE.
24 THE WITNESS: I THINK THAT FROM THE SHAREHOLDER --
25 WE WERE INITIALLY CONTACTED BY THE SHAREHOLDER DIRECTORS, OF 678
GREENTHAL - DIRECT / LINDSTROM
1 WHICH THERE WERE FIVE, AND I BELIEVE THAT THEY HAD GOTTEN TO A
2 POINT WHERE THEIR INVOLVEMENT IN MANAGEMENT WAS MINIMAL. THE
3 COMPANY WAS -- HAD GONE THROUGH DIVESTING ITS CABLE OPERATIONS
4 A NUMBER OF YEARS EARLIER, AND THEY GOT TO A POINT WHERE, I
5 THINK, THAT THEY BELIEVED THAT THEY NEEDED TO LOOK AT THE
6 INVESTMENT IN THE COMPANY. I THINK UNDERLYING THAT WAS SOME
7 CONCERN ABOUT WHETHER IT WAS A GOOD IDEA TO HAVE THEIR FAMILY
8 INVESTMENT TIED UP IN THE TELEVISION AND NEWSPAPER INDUSTRY AND
9 WHETHER THOSE WERE GOOD INDUSTRIES TO BE INVESTED IN.
10 THE COURT: YOU SAY THERE WERE FIVE SHAREHOLDERS?
11 THE WITNESS: THERE WERE FIVE SHAREHOLDER DIRECTORS.
12 THE COURT: FIVE SHAREHOLDER DIRECTORS?
13 THE WITNESS: CORRECT. AND THEY REPRESENTED
14 DIFFERENT PARTS OF FAMILY. THERE WERE MANY MORE SHAREHOLDERS
15 THAN THAT.
16 BY MR. LINDSTROM:
17 Q. FOR THE RECORD, WHO WERE THE FIVE SHAREHOLDER DIRECTORS?
18 A. NION MCEVOY, TRISH KUBAL, HELEN SPALDING, PETER STENT AND
19 KIP THIERIOT.
20 Q. NOW, THE FAMILY HAD OWNED THIS BUSINESS FOR MORE THAN A
21 HUNDRED YEARS; ISN'T THAT RIGHT?
22 A. CORRECT.
23 Q. DURING THE COURSE OF YOUR INITIAL WORK ON THIS ASSIGNMENT,
24 DID YOU HAVE OCCASION TO TALK WITH THE FAMILY MEMBERS
25 CONCERNING THEIR DESIRES AND MOTIVATIONS? 679
GREENTHAL - DIRECT / LINDSTROM
1 A. YES.
2 Q. AT THAT POINT IN TIME DID ANYONE FROM THE FAMILY SUGGEST
3 TO YOU THAT THE REASON THEY WEREN'T INTERESTED IN SELLING WAS A
4 FEAR OF COMPETITION WITH HEARST FOLLOWING THE EXPIRATION OF THE
5 JOA?
6 A. NO.
7 MR. ALIOTO: I OBJECT, YOUR HONOR, ON THE GROUND
8 THAT IT'S CALLING FOR HEARSAY TESTIMONY.
9 THE COURT: OVERRULED.
10 THE WITNESS: NO.
11 BY MR. LINDSTROM:
12 Q. AT ANY POINT DURING YOUR ENGAGEMENT, DID ANYONE FROM THE
13 FAMILY SUGGEST ANY CONCERNS ABOUT POSSIBLE COMPETITION FROM
14 HEARST FOLLOWING THE EXPIRATION OF THE JOA?
15 MR. ALIOTO: OKAY. I OBJECT, YOUR HONOR. I AM
16 GOING -- I JUST WOULD LIKE TO HAVE AN OBJECTION ON ANY EFFORT
17 TO ELICIT FROM THIS WITNESS WHAT OTHER REPRESENTATIVES OF THE
18 CHRONICLE SAID TO HER.
19 THE COURT: I THINK IT --
20 MR. ALIOTO: AND I ALSO -- AND I ALSO OBJECT ON THE
21 GROUND THAT THE COUNSEL IS LEADING THE WITNESS INTO THESE
22 QUESTIONS.
23 THE COURT: WELL, ALL RIGHT. I THINK THE TESTIMONY
24 IS OFFERED FOR THE STATE OF MIND OF THE WITNESS RATHER THAN FOR
25 THE TRUTH OF THE STATEMENT BEING ASSERTED. 680
GREENTHAL - DIRECT / LINDSTROM
1 MR. LINDSTROM: THAT'S CORRECT.
2 MR. ALIOTO: AND I WOULD HAVE NO OBJECTION IF IT'S
3 OFFERED FOR THAT BASIS, BUT I DO HAVE AN OBJECTION TO LEADING,
4 YOUR HONOR.
5 THE COURT: AND THE COURT WILL RECEIVE IT ON THAT
6 BASIS.
7 WITH RESPECT TO THE LEADING NATURE OF THE QUESTIONS,
8 I WAS ABOUT READY TO TELL MR. LINDSTROM THAT I HOPED THAT WE
9 WERE AT THE END OF THE LEADING QUESTIONS, BUT HE IS LAYING A
10 FOUNDATION.
11 MR. LINDSTROM: THAT'S CORRECT, YOUR HONOR.
12 THE COURT: TRYING TO MOVE THROUGH THESE PRELIMINARY
13 MATTERS AND LEADING QUESTIONS FOR THAT PURPOSE ARE APPROPRIATE
14 SO . . .
15 MR. LINDSTROM: RIGHT. AND I HAVE NO INTENTION OF
16 LEADING THIS WITNESS, YOUR HONOR.
17 THE COURT: ALL RIGHT. LET'S JUST PROCEED.
18 BY MR. LINDSTROM:
19 Q. HOW DID YOU GO ABOUT PERFORMING THE EVALUATION THAT DLJ
20 WAS ASKED TO UNDERTAKE?
21 A. WE SPENT TIME WITH THE SENIOR MANAGEMENT AT CHRONICLE
22 PUBLISHING COMPANY, LEARNING MORE ABOUT THE BUSINESSES.
23 THERE -- AS I SAID BEFORE, THERE WERE DIFFERENT STAGES TO THIS
24 BUT AT LEAST IN THE INITIAL STAGE. WE WENT THROUGH, YOU KNOW,
25 DISCUSSIONS WITH SENIOR MANAGEMENT. WE GATHERED INFORMATION 681
GREENTHAL - DIRECT / LINDSTROM
1 ABOUT THE BUSINESSES AND THE COMPANIES. WE GOT TO KNOW THE
2 SHAREHOLDERS AND THE THINGS THAT, YOU KNOW, SEEMED TO BE
3 IMPORTANT FROM THEIR STANDPOINT. AND WE WENT ABOUT MODELING
4 AND ANALYZING A WHOLE HOST OF DIFFERENT ALTERNATIVES FOR THEM
5 TO TRY TO LAY OUT A FRAMEWORK FOR THEIR, YOU KNOW, DECISION
6 ABOUT WHAT THEY WANTED TO DO WITH THE COMPANY.
7 Q. DID YOU BECOME FAMILIAR WITH THE BUSINESS OF THE CHRONICLE
8 NEWSPAPER?
9 A. YES.
10 Q. AND DID YOU BECOME FAMILIAR WITH THE COMPETITIVE
11 ENVIRONMENT IN WHICH THE CHRONICLE NEWSPAPER OPERATED?
12 A. WELL, WE BECAME FAMILIAR WITH THE FACT THAT IT OPERATED
13 WITHIN THE JOA AND THAT THERE WERE OTHER PEOPLE AROUND THE SAN
14 FRANCISCO MARKET ALSO PUBLISHING NEWSPAPERS, YES.
15 Q. DID YOU REVIEW THE TERMS OF THE JOA?
16 A. YES.
17 Q. WERE YOU AWARE OF THE EXISTENCE WITHIN THE JOA OF WHAT
18 WE'VE COME TO REFER TO AS A "FIRST RIGHT OF REFUSAL"?
19 A. YES.
20 Q. WERE YOU AWARE OF THE SO-CALLED "60-MILE RADIUS" CLAUSE?
21 A. YES.
22 Q. WERE YOU AWARE THAT ONE-HALF OF THE ASSETS REQUIRED TO
23 PUBLISH THE CHRONICLE WERE OWNED BY HEARST?
24 A. WE WERE AWARE THAT THE CHRONICLE AND HEARST EACH OWNED
25 HALF THE ASSETS. 682
GREENTHAL - DIRECT / LINDSTROM
1 Q. DID YOU BECOME AWARE OF THE FACT THAT THE JOA WAS TO
2 EXPIRE IN 2005?
3 A. YES.
4 Q. AS PART OF THE INITIAL PHASE OF YOUR ASSIGNMENT, DID YOU
5 LOOK AT EXPERIENCES WITH JOA'S IN OTHER PARTS OF THE COUNTRY?
6 A. YES.
7 Q. AT SOME POINT IN TIME DID YOU MEET WITH THE SHAREHOLDER
8 DIRECTORS?
9 A. YES.
10 Q. DID YOU ALSO MEET WITH A FULL BOARD OF DIRECTORS?
11 A. YES.
12 Q. AT ANY POINT IN TIME DURING THIS ENGAGEMENT, DID YOU
13 EXPRESS AN OPINION AS TO WHAT YOU THOUGHT WOULD HAPPEN UPON THE
14 EXPIRATION OF THE JOA?
15 MR. ALIOTO: YOUR HONOR, I OBJECT TO THE NATURE OF
16 THESE LEADING QUESTIONS, YOUR HONOR.
17 MR. LINDSTROM: IT'S NOT A LEADING QUESTION.
18 MR. ALIOTO: WELL, I SUBMIT THAT THEY ARE.
19 THE COURT: ALL RIGHT, LET'S BACK UP A STEP.
20 THE FIVE SHAREHOLDER DIRECTORS, NION MCEVOY, KIP
21 THIERIOT, PETER STENT, HELEN --
22 THE WITNESS: SPALDING.
23 THE COURT: AND THE REMAINING ONE?
24 THE WITNESS: TRISH KUBAL.
25 THE COURT: TRISH? 683
GREENTHAL - DIRECT / LINDSTROM
1 THE WITNESS: KUBAL, K-U-B-A-L.
2 THE COURT: THANK YOU. ALL RIGHT.
3 NOW, WHY DON'T YOU START OVER WITH YOUR QUESTION,
4 MR. LINDSTROM, AND SEE IF WE CAN PROCEED A LITTLE MORE . . .
5 BY MR. LINDSTROM:
6 Q. DURING THE COURSE OF THE PRESENTATIONS THAT YOU MADE TO
7 THE SHAREHOLDER DIRECTORS AND THE BOARD OF DIRECTORS, DID YOU
8 EVER EXPRESS AN OPINION ON BEHALF OF DLJ AS TO WHAT YOU
9 BELIEVED MIGHT HAPPEN UPON EXPIRATION OF THE JOA?
10 A. YES.
11 Q. WHAT OPINION DID YOU EXPRESS ON BEHALF OF DLJ?
12 A. WE TOLD THEM THAT WE BELIEVED THE EXAMINER WAS A PAPER
13 THAT WAS NEARING EXTINCTION AT THE END OF THE JOA. IT WOULD GO
14 AWAY.
15 Q. ON WHAT DID YOU BASE THAT ASSESSMENT?
16 A. OUR ANALYSIS OF THE -- YOU KNOW, LOOKING AT THE MARKET,
17 LOOKING AT -- YOU KNOW, IT'S THE RELATIVE CIRCULATION OF THE
18 TWO NEWSPAPERS, OBVIOUS FINANCIAL PROSPECTS, YOU KNOW -- WHEN
19 WE LOOKED AT THE JOA AND WE LOOKED AT, YOU KNOW, HOW THE
20 PAYMENTS WERE GOING -- AS THEY WERE PARSED OUT THROUGH THE JOA
21 AND THE FACT THAT IT WAS IN A DECLINE THAT WAS OF SIGNIFICANCE,
22 AND WE BELIEVED THAT GIVEN THE RELATIVE CIRCULATION OF THE TWO
23 PAPERS, IT WAS NOT GOING TO BE IN EXISTENCE.
24 Q. WERE YOU AWARE PRIOR TO RENDERING THAT OPINION THAT HEARST
25 EXECUTIVES HAD STATED AN INTENTION TO REMAIN IN THE SAN 684
GREENTHAL - DIRECT / LINDSTROM
1 FRANCISCO MARKETPLACE FOLLOWING THE EXPIRATION OF THE JOA?
2 A. YOU KNOW, WE KNEW THERE WAS A LOT OF NOISE COMING OUT OF
3 HEARST IN TERMS OF, YOU KNOW, HOW THEY WERE TRYING TO POSITION
4 THEMSELVES FOR THE TERMINATION OF THE JOA. I DON'T REMEMBER
5 SPECIFICALLY WHAT WE WERE TOLD ONE WAY OR THE OTHER.
6 Q. FOR EXAMPLE, WERE YOU AWARE THAT THE PUBLISHER OF THE
7 EXAMINER HAD REQUESTED PERMISSION TO MOVE THAT PAPER TO THE
8 MORNING FIELD?
9 MR. ALIOTO: HE IS LEADING THE WITNESS.
10 THE COURT: SUSTAINED.
11 MR. ALIOTO: THANK YOU.
12 THE COURT: MR. LINDSTROM, I TOLD YOU I WAS GOING TO
13 CUT OFF THE LEADING QUESTIONS AFTER YOU MADE YOUR FOUNDATION.
14 BY MR. LINDSTROM:
15 Q. WHAT, IF ANYTHING, DID YOU KNOW ABOUT THE EXAMINER'S
16 INTENTIONS, STATED INTENTIONS, POST JOA?
17 A. WE KNEW THAT -- THERE HAD BEEN A LOT OF NOISE. THERE HAD
18 BEEN PRIOR CONVERSATIONS PRIOR TO OUR GETTING INVOLVED IN THE
19 DISCUSSIONS WITH THE CHRONICLE MANAGEMENT ABOUT, YOU KNOW,
20 RENEGOTIATING THE JOA AND HEARST MAKING A LOT OF NOISE ABOUT
21 THEIR WANTING TO STAY IN THE MARKET.
22 WE ALSO DID RECEIVE A LETTER -- A COPY OF THE LETTER
23 THAT ASKED TO BE MOVED -- YOU KNOW, ASKING THEM TO MOVE TO THE
24 MORNING FIELD.
25 Q. HOW DID THAT INFORMATION AFFECT YOUR THINKING, IF AT ALL? 685
GREENTHAL - DIRECT / LINDSTROM
1 A. IT DIDN'T AT ALL, REALLY, BECAUSE WE VIEWED IT -- WE PUT
2 IT IN THE CATEGORY OF MORE SABER RATTLING.
3 Q. AT ANY POINT IN TIME DURING YOUR DUE DILIGENCE, DID YOU
4 ATTEMPT TO ASCERTAIN THE VIEWS OF CHRONICLE MANAGEMENT ABOUT
5 WHAT THEY THOUGHT WOULD HAPPEN FOLLOWING THE EXPIRATION OF THE
6 JOA?
7 A. WE HAD A NUMBER OF CONVERSATIONS WITH THE CHRONICLE
8 MANAGEMENT, AND I BELIEVE THEY WERE OF THE SAME VIEW WE WERE.
9 THEY DID NOT BELIEVE THEY WOULD STAY IN -- IN BUSINESS WITH THE
10 JOA.
11 Q. DO YOU KNOW WHAT MR. SIAS' VIEW WAS?
12 MR. ALIOTO: I OBJECT ON THE GROUND THAT IT'S
13 CALLING FOR HEARSAY EVIDENCE.
14 THE COURT: SUSTAINED.
15 MR. LINDSTROM: IT'S STATE OF MIND, YOUR HONOR.
16 THE COURT: WELL, NUMBER ONE, MR. SIAS, OF COURSE,
17 WAS A WITNESS. YOU CAN ALWAYS RECALL HIM. BUT HOW IS
18 MR. SIAS' STATE OF MIND RELEVANT TO THIS WITNESS' TESTIMONY?
19 MR. LINDSTROM: BECAUSE I BELIEVE, YOUR HONOR,
20 DURING CROSS WE ARE GOING TO SEE THE DLJ PRESENTATION OF TWO
21 SCENARIOS THAT MR. ALIOTO EXAMINED MR. SIAS ON AT GREAT LENGTH.
22 AND THE QUESTION IS THEN GOING TO ARISE AS TO WHY THAT -- THOSE
23 SCENARIOS WERE BEING MODELED AND WHAT THE PERCEPTIONS WERE OF
24 MANAGEMENT AND THIS WITNESS ABOUT THE LIKELIHOOD THAT THAT
25 SCENARIO WOULD COME INTO PLAY. 686
GREENTHAL - DIRECT / LINDSTROM
1 THE COURT: WELL, BUT WHAT I UNDERSTAND YOU TO BE
2 ASKING IS WHAT THIS WITNESS' STATE OF MIND IS WITH RESPECT TO
3 WHAT SHE THOUGHT SIAS THOUGHT. ISN'T THAT WHAT YOU ARE ASKING?
4 MR. LINDSTROM: I WILL WITHDRAW THE QUESTION, YOUR
5 HONOR.
6 THE COURT: BUT THAT'S WHAT YOU ARE ASKING, ISN'T
7 IT?
8 BY MR. LINDSTROM:
9 Q. DURING THE COURSE OF THIS ENGAGEMENT, DID YOU HAVE
10 OCCASION TO TALK WITH OTHER PARTICIPANTS IN THE SAN FRANCISCO
11 NEWSPAPER MARKETPLACE?
12 A. YES.
13 Q. DID YOU LEARN ANYTHING -- ANY INFORMATION FROM THOSE
14 INDIVIDUALS THAT BORE ON YOUR THINKING AS TO WHAT HEARST MIGHT
15 DO UPON THE EXPIRATION OF THE JOA?
16 MR. ALIOTO: IS THIS -- I OBJECT, YOUR HONOR, ON THE
17 GROUND THAT THERE IS NO FOUNDATION THAT ANY SUPPOSED PERSON HAS
18 ANY KNOWLEDGE AS TO WHAT HEARST WOULD DO, AND, SECONDLY, IT'S
19 CALLING FOR HEARSAY EVIDENCE.
20 THE COURT: WELL, I THINK COUNSEL HAS ATTEMPTED TO
21 ELICIT STATE OF MIND TESTIMONY FROM THIS WITNESS AND IT IS
22 BEING OFFERED FOR THIS WITNESS' STATE OF MIND. SO --
23 MR. LINDSTROM: I WILL LAY THE FOUNDATION, YOUR
24 HONOR.
25 BY MR. LINDSTROM: 687
GREENTHAL - DIRECT / LINDSTROM
1 Q. DID YOU SPEAK WITH REPRESENTATIVES OF KNIGHT RIDDER AT ANY
2 POINT IN TIME?
3 A. YES.
4 Q. WITH WHOM DID YOU SPEAK AT THAT ORGANIZATION?
5 A. TONY RIDDER.
6 Q. TO YOUR KNOWLEDGE, IS KNIGHT RIDDER A PARTICIPANT IN THIS
7 MARKETPLACE?
8 A. THEY ARE TO THE EXTENT THAT THEIR PAPER IS CLEARLY COMING
9 INTO THE MARKET OVERALL, YES.
10 Q. DID MR. RIDDER EXPRESS ANY VIEWS TO YOU ABOUT THE FUTURE
11 OF THE EXAMINER THAT BORE ON YOUR THINKING IN CONNECTION WITH
12 THIS ENGAGEMENT?
13 A. YES. I HAD A CONVERSATION WITH HIM WHEREBY HE OFFERED HIS
14 VIEWS, QUITE FRANKLY, WITHOUT MY SOLICITING THEM, THAT HE
15 BELIEVED THAT THE EXAMINER WAS A DEAD ENTERPRISE, AND AT THE
16 END OF THE JOA IT WAS GOING TO GO AWAY AND THEY HAD NOWHERE TO
17 GO.
18 AND, YOU KNOW, IT CLEARLY CONFIRMED, YOU KNOW,
19 WHERE -- AT LEAST WHAT MY THINKING AND WHAT I BELIEVED WAS THE
20 THINKING OF MY CLIENT.
21 Q. AT SOME POINT DID YOU COMPLETE YOUR EVALUATION OF THE
22 VARIOUS ALTERNATIVES THAT WERE AVAILABLE TO CHRONICLE
23 PUBLISHING?
24 A. YES.
25 Q. AND DID YOU ULTIMATELY MAKE A RECOMMENDATION TO THE 688
GREENTHAL - DIRECT / LINDSTROM
1 COMPANY?
2 A. YES.
3 Q. WHEN DID YOU DO THAT?
4 A. I BELIEVE -- AGAIN, I GET THE DATES CONFUSED. I BELIEVE
5 IT WAS SOMETIME IN THE MAY TIME FRAME.
6 Q. WHAT WAS THE RECOMMENDATION THAT DLJ MADE AT THAT TIME?
7 A. WE MADE A RECOMMENDATION BASED ON FINANCIAL OUTCOMES THAT
8 THE COMPANY SHOULD PURSUE A SALE OF THE -- THAT THE
9 SHAREHOLDERS SHOULD PURSUE A SALE OF THE COMPANY.
10 Q. THE ENTIRE COMPANY?
11 A. YES.
12 Q. WOULD THAT INCLUDE THE CHRONICLE?
13 A. YES.
14 Q. AT THAT POINT IN TIME DID YOU EXPRESS ANY KIND OF VIEW AS
15 TO WHAT AMOUNTS MIGHT BE REALIZED FROM THE SALE OF THE COMPANY?
16 A. YES. WE ATTEMPTED TO DO A VALUATION OF THE COMPANY.
17 Q. AND WHAT VALUATION RANGE DID YOU PROVIDE THE SHAREHOLDERS?
18 A. WE PROVIDED THEM A VALUATION RANGE FOR EACH -- ARE YOU
19 ASKING FOR THE CHRONICLE OR FOR THE WHOLE COMPANY?
20 Q. FOR THE ENTIRE COMPANY.
21 A. FROM 2 TO $2.4 BILLION.
22 Q. WHAT VALUATION, IF ANY, DID YOU GIVE THE DIRECTORS AT THAT
23 TIME FOR THE CHRONICLE NEWSPAPER?
24 A. WE GAVE THEM A VALUATION FOR THE CHRONICLE ALONE, WHICH I
25 BELIEVE -- I DON'T HAVE THE DOCUMENT IN FRONT OF ME -- BUT I 689
GREENTHAL - DIRECT / LINDSTROM
1 BELIEVE RANGED FROM -- IN THE -- THE 400 MILLION AREA TO AROUND
2 610 MILLION.
3 Q. WHAT ACTION, IF ANY, DID THE BOARD TAKE IN RESPONSE TO
4 YOUR RECOMMENDATION?
5 A. THE BOARD TOOK OUR RECOMMENDATION INTO ACCOUNT IN -- IN
6 CONJUNCTION WITH THE OTHER OBJECTIVES, WHICH WERE NONFINANCIAL.
7 OUR -- OUR REVIEW WAS BASED ONLY ON REVIEW OF FINANCIAL
8 ALTERNATIVES, NOT TAKING INTO ACCOUNT OTHER ISSUES WHICH WE
9 LEARNED AND THAT WERE QUITE IMPORTANT TO THE SHAREHOLDERS, SUCH
10 AS THEIR FAMILY LEGACY AND RELATIONSHIP WITH THE CHRONICLE
11 NEWSPAPER, WHICH HAS BEEN VERY MUCH A PART OF THE FABRIC OF THE
12 FAMILY FOR -- FOR, YOU KNOW, A HUNDRED-PLUS YEARS, AND ALSO HOW
13 THEY FELT EMPLOYEES WERE GOING TO BE DEALT WITH AND THINGS LIKE
14 THAT. THERE WERE A LOT OF SORT OF SOFT ISSUES THAT WENT AROUND
15 DECISION MAKING. BUT THE BOARD IN CONJUNCTION WITH THE
16 SHAREHOLDERS BASICALLY MADE THE DECISION TO MOVE FORWARD TO
17 SELL THE COMPANY.
18 Q. AT THAT POINT IN TIME, WAS DLJ ENGAGED TO MARKET THE
19 PROPERTIES?
20 A. YES, WE WERE.
21 Q. AND HOW DID YOU GO ABOUT MARKETING THE PROPERTIES?
22 A. WE WENT INTO FURTHER DUE DILIGENCE, MEANING WE DID A
23 DEEPER EVALUATION OF EACH OF THE BUSINESSES. WE WERE ALLOWED
24 TO THEN GO AND TALK TO OPERATING MANAGEMENT OF EACH OF THE
25 VARIOUS COMPANIES. AND, AS I SAID, THERE WERE A NUMBER OF 690
GREENTHAL - DIRECT / LINDSTROM
1 DIFFERENT COMPANIES THAT WE SPENT TIME WITH -- ALL OF THE
2 COMPANIES BUT THERE WERE A NUMBER OF THEM -- AND WENT ABOUT
3 PREPARING AN INFORMATION MEMORANDUM ON EACH OF THE BUSINESSES
4 AND THEN WENT INTO A PROCESS OF CONTACTING BUYERS IN THE
5 MARKET, HAVING THEM SIGN CONFIDENTIALITY AGREEMENTS, MAILING
6 THEM INFORMATION AND FOLLOWING UP.
7 BECAUSE IT HAD BECOME PUBLIC EVEN PRIOR TO OUR
8 COMPLETING THE WORK OF GETTING READY TO GO INTO THE MARKET, WE
9 HAD GOTTEN A TON OF IN-BOUND PHONE CALLS FROM PEOPLE WHO WERE
10 INTERESTED IN THE PROPERTIES BECAUSE THEY WERE VERY DESIRABLE
11 PROPERTIES.
12 Q. YOU'VE MENTIONED THAT YOU WERE TO SELL ALL OF THE
13 PROPERTIES?
14 A. CORRECT.
15 Q. IS THAT CORRECT?
16 A. YES.
17 Q. LET ME FOCUS MY EXAMINATION ON THE NEWSPAPER PAPER -- THE
18 NEWSPAPER GROUP.
19 A. OKAY.
20 Q. WAS IT YOUR INTENTION IN APPROACHING THE MARKET TO SELL
21 ALL THREE NEWSPAPERS?
22 A. WELL, WE ALWAYS INTENDED TO SELL ALL THREE NEWSPAPERS.
23 THE WAY WE APPROACHED THE MARKET WAS TO HAVE -- TO PUT ALL
24 THREE OF THE NEWSPAPERS TOGETHER IN ONE PACKAGE, MEANING THAT
25 WE WERE LOOKING FOR BIDS ON ALL THREE NEWSPAPERS FROM THE SAME 691
GREENTHAL - DIRECT / LINDSTROM
1 BUYER.
2 Q. WERE THE NEWS --
3 A. OR BUYERS.
4 Q. I'M SORRY.
5 WERE THE NEWSPAPERS TO BE SOLD WITH THE COMPANY OR
6 SPUN OUT SEPARATELY?
7 A. THEY WERE TO BE SOLD IN THE CHRONICLE CORPORATION. WE
8 HAD -- THE INTERESTING THING -- ONE OF THE INTERESTING THINGS
9 ABOUT THE CHRONICLE PUBLISHING COMPANY WAS THAT BECAUSE OF --
10 IT WAS ORGANIZED AS AN S CORP., WE HAD AN ABILITY TO SELL THE
11 OTHER PAPERS -- THE OTHER PROPERTIES WITHOUT TRIGGERING A
12 COUPLE OF LAYERS OF TAXATION THAT HAD BEEN ORGANIZED AS AN S
13 CORP. TEN YEARS PRIOR. AND THEY BASICALLY ALLOWED US TO THEN
14 SELL THOSE PROPERTIES OUT SEPARATELY AND THEN TO TAKE THE
15 CHRONICLE CORPORATION AND TO FIND A HOME FOR THE CHRONICLE
16 CORPORATION.
17 THE CHRONICLE CORPORATION AT THAT POINT WOULD HAVE
18 INCLUDED THE THREE NEWSPAPERS. THAT WAS THE STRUCTURE WE WERE
19 PURSUING.
20 Q. WERE THERE ANY OTHER ADVANTAGES IN YOUR MIND TO SELLING
21 THE THREE NEWSPAPERS AS A GROUP WITH THE COMPANY?
22 A. THERE WERE SEVERAL ADVANTAGES -- ACTUALLY, PROBABLY THREE
23 OF THEM. ONE WAS WE NEEDED TO FIND A HOME FOR THE CHRONICLE
24 CORPORATION SO THAT THE -- YOU KNOW, THE HISTORICAL LEGACY,
25 ACTIVITIES OF THE BUSINESS WHICH -- YOU KNOW, WHICH MAY HAVE 692
GREENTHAL - DIRECT / LINDSTROM
1 RELATED TO CONTINGENT CLAIMS OF THE COMPANY WOULD EVENTUALLY
2 FIND A HOME WITH SOMEBODY ELSE AND THE AFFAIRS OF THE CHRONICLE
3 CORPORATION WOULD BE WRAPPED UP.
4 THE SECOND WAS THAT WE THOUGHT WE WERE IN A POSITION
5 WHERE WE MIGHT HAVE BEEN ABLE TO DO A TAX-FREE TRANSACTION FOR
6 THE CHRONICLE CORPORATION.
7 AND THE THIRD WAS THAT BY VIRTUE OF SELLING THE
8 THREE NEWSPAPERS TOGETHER IN THE CHRONICLE CORPORATION, WE
9 BELIEVED THAT WE WERE WITHIN THE CONFINES OF A CLEAR PASSAGEWAY
10 RELATIVE TO RIGHT OF FIRST REFUSAL, MEANING WE WEREN'T GOING TO
11 TRIGGER RIGHT OF FIRST REFUSAL IF WE SOLD THE CHRONICLE
12 CORPORATION WITH THE THREE BUSINESSES IN IT.
13 THE COURT: THE RIGHT OF FIRST REFUSAL UNDER THE
14 JOINT OPERATING AGREEMENT?
15 THE WITNESS: CORRECT, WHICH REALLY RELATED TO THE
16 CHRONICLE, THE ASSETS OF THE CHRONICLE.
17 THE COURT: NOW, THE WRAP-UP IDEA RELATED TO WHAT
18 CIRCUMSTANCES OF THE CHRONICLE CORPORATION?
19 THE WITNESS: WELL, EFFECTIVELY, YOU HAVE THE
20 CHRONICLE CORPORATION, WHICH HAS EXISTED FOR 140 YEARS. AND TO
21 THE EXTENT WE SOLD BUSINESSES OUT OF IT, THE SHAREHOLDERS WOULD
22 STILL OWN THE CHRONICLE CORPORATION, EVEN THOUGH THERE WOULD BE
23 NO ASSETS IN IT OTHER THAN CASH TO THE EXTENT IT HADN'T BEEN
24 DISTRIBUTED TO THE SHAREHOLDERS.
25 SO WHAT WE WANTED TO DO WAS TO HAVE -- AND INSTEAD 693
GREENTHAL - DIRECT / LINDSTROM
1 OF HAVING TO HAVE THE CHRONICLE CORPORATION IN EXISTENCE FOR A
2 NUMBER OF YEARS, THE POTENTIAL FOR CONTINGENT CLAIMS, WE WANTED
3 TO MERGE IT WITH ANOTHER COMPANY SO THAT BASICALLY THE AFFAIRS
4 OF THE CHRONICLE CORPORATION WOULD BE WOUND UP.
5 THERE WERE A LOT OF DIFFERENT THINGS WE WERE TRYING
6 TO BALANCE. IT WAS A LITTLE TRICKY.
7 THE COURT: THERE HAS BEEN SOME EVIDENCE IN THE CASE
8 ABOUT LOAN GUARANTEES WHICH THE CHRONICLE CORPORATION HAD.
9 THE WITNESS: UH-HUH.
10 THE COURT: DID THOSE FIGURE INTO THESE WRAP-UP
11 CONSIDERATIONS?
12 THE WITNESS: THERE WERE -- ONE OF THE ISSUES -- I
13 AM NOT SURE EXACTLY WHAT YOU ARE REFERRING TO. BUT ONE OF THE
14 ISSUES WAS IN RELATIONSHIP TO THE TCI ACQUISITION OF THE CABLE
15 BUSINESSES. THERE WAS A REPRESENTATION MADE ABOUT MAINTAINING
16 A CERTAIN AMOUNT OF NET WORTH IN THE CHRONICLE CORPORATION.
17 AND, AGAIN, TO THE EXTENT WE MERGED THE CHRONICLE CORPORATION
18 INTO SOMEBODY ELSE, THEY COULD MAINTAIN THAT NET WORTH AS
19 OPPOSED TO US HAVING TO LEAVE CASH BEHIND IN THE COMPANY.
20 LOAN GUARANTEES I DON'T REMEMBER AS BEING AN ISSUE
21 RELATED TO SELLING THE CHRONICLE CORPORATION.
22 THE COURT: WELL, THIS CAME UP IN CONNECTION WITH
23 THE BRIEFING AND THE PRELIMINARY INJUNCTION MOTION, A MOTION
24 WHICH NEVER WAS HEARD AT THE INSTANCE OF THE PARTIES. BUT THE
25 COURT'S UNDERSTANDING WAS THAT UNLESS THE SALE OF THE CHRONICLE 694
GREENTHAL - DIRECT / LINDSTROM
1 CORPORATION WERE TO OCCUR BEFORE SOME DATE THIS SUMMER, THAT
2 THAT WOULD HAVE AN EFFECT ON OTHER OF THE LIQUIDATION
3 TRANSACTIONS THAT WERE OUTSTANDING.
4 THE WITNESS: RIGHT. DO YOU WANT ME TO EXPLAIN HOW
5 THAT WORKS?
6 THE COURT: IF YOU WOULD.
7 THE WITNESS: ALL RIGHT. WE EFFECTIVELY WENT OUT --
8 AND WHAT ENDED UP HAPPENING BECAUSE WE -- YOU KNOW, THE REASON
9 WE ARE SITTING HERE IS WE WENT DOWN A SOMEWHAT DIFFERENT PATH
10 THAN WE STARTED OUT.
11 WE EFFECTIVELY ENDED UP SELLING THE ASSETS OF THE
12 BUSINESS IN SEVEN SEPARATE TRANSACTIONS. IT WAS A LOT OF WORK,
13 YES. WE ENDED UP NOW WITH ALL OF THE TRANSACTIONS EFFECTIVELY
14 HAVE CLOSED WITH THE EXCEPTION OF KRON AND THE SALE OF THE
15 CHRONICLE. RELATED TO THOSE ARE THE GATE AND BAY T.V. --
16 OBVIOUSLY, BECAUSE BAY T.V. IS GOING WITH THE CHRONICLE -- WITH
17 KRON AND THE GATE IS GOING WITH THE CHRONICLE.
18 EFFECTIVELY, WE ARE IN A POSITION WHEREBY WE CAN
19 CLOSE THE KRON TRANSACTION AS AN ASSET TRANSACTION THAT --
20 THERE ARE TWO ALTERNATIVES AVAILABLE TO US. TO THE EXTENT THAT
21 THE CHRONICLE HAS BEEN SOLD AND NOTHING IS LEFT IN THE COMPANY
22 EXCEPT FOR KRON, WE WOULD THEN MERGE THE CHRONICLE CORPORATION
23 INTO YOUNG BROADCASTING.
24 THE COURT: AND YOUNG BROADCASTING WOULD ASSUME
25 THESE? 695
GREENTHAL - DIRECT / LINDSTROM
1 THE WITNESS: CORPORATE LIABILITIES, RIGHT.
2 THE COURT: CORPORATE LIABILITIES, INCLUDING --
3 THE WITNESS: THE LOAN GUARANTEES ARE EFFECTIVELY
4 GONE. THEY WOULD HAVE THIS -- THE THING I WAS REFERRING TO
5 BEFORE, THE TCI REPRESENTATION ABOUT MAINTAINING A CERTAIN
6 AMOUNT OF NET WORTH IN THE COMPANY, WOULD STILL BE THERE.
7 THE COURT: I SEE.
8 THE WITNESS: THOSE GO AWAY AFTER A PERIOD OF TIME.
9 THE COURT: I SEE. SO AS LONG AS THE YOUNG
10 TRANSACTION COMPLETES BEFORE AUGUST OR IF THE YOUNG TRANSACTION
11 CLOSES BEFORE WHATEVER DATE IN AUGUST --
12 THE WITNESS: RIGHT, THEY WILL TAKE --
13 THE COURT: -- THEY WILL TAKE --
14 THE WITNESS: BUT THE YOUNG TRANSACTION CLOSING AS A
15 CORPORATE TRANSACTION CAN ONLY HAPPEN TO THE EXTENT THE
16 CHRONICLE HAS BEEN SOLD. OTHERWISE, IT REVERTS TO AN ASSET
17 TRANSACTION AND THE SHAREHOLDERS WOULD BE LEFT WITH THE
18 CHRONICLE CORPORATION.
19 THE COURT: INCLUDING THE OBLIGATION TO MAINTAIN --
20 THE WITNESS: CORRECT.
21 THE COURT: -- NET WORTH --
22 THE WITNESS: CORRECT.
23 THE COURT: -- SUFFICIENT TO MEET THE LOAN
24 COVENANTS?
25 THE WITNESS: CORRECT, ON THE TCI AGREEMENT. 696
GREENTHAL - DIRECT / LINDSTROM
1 THE COURT: TCI AGREEMENT.
2 THE WITNESS: IT'S VERY STRAIGHTFORWARD, DON'T YOU
3 THINK?
4 SORRY.
5 THE COURT: WHAT IS THAT TRIGGER DATE?
6 THE WITNESS: I'M NOT EXACTLY SURE. I BELIEVE IT'S
7 THE END OF AUGUST.
8 THE COURT: AUGUST 31?
9 THE WITNESS: I BELIEVE. I'M -- YOU KNOW, I AM
10 NOT --
11 THE COURT: ALL RIGHT.
12 THE WITNESS: -- CERTAIN OF THAT. I BELIEVE IT'S
13 SUBJECT TO AN EXTENSION AT A POINT IN TIME RELATED TO THE YOUNG
14 TRANSACTION.
15 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
16
17
18
19
20
21
22
23
24
25 697
GREENTHAL - DIRECT / LINDSTROM
1 THE COURT: ALL RIGHT.
2 MR. LINDSTROM: THANK YOU, YOUR HONOR.
3 Q. YOU MENTIONED A MOMENT AGO THAT ONE OF THE ADVANTAGES OF
4 THIS DEAL STRUCTURE WAS RELATING TO TRIGGERING OF THE FIRST
5 RIGHT OF REFUSAL.
6 A. CORRECT.
7 Q. WAS THAT IMPORTANT TO YOU IN MARKETING THE PROPERTY IN
8 SOME WAY?
9 A. YEAH. I MEAN, WE BELIEVE THAT GOING INTO THE MARKET IN A
10 WAY WHERE PEOPLE BELIEVED THAT THEY WERE GOING TO HAVE ABSOLUTE
11 RIGHT TO BUY THE NEWSPAPER IF THEY WERE THE HIGHEST BIDDER
12 WITHOUT SOMEBODY HAVING AN ABILITY TO MEET THEIR BID WAS
13 IMPORTANT. WE WANTED TO GO INTO IT IN A WAY WHERE WE THOUGHT
14 THE BUYERS WOULD BELIEVE THEY WOULD HAVE AN ABSOLUTE CLEAR SHOT
15 OF BUYING IT WITHOUT HAVING SOMEBODY ELSE LOOKING OVER THEIR
16 SHOULDER; I.E., THE HEARST CORPORATION WITH A RIGHT TO BEAT
17 THEIR OFFER.
18 Q. WHAT SPECIFICALLY DID YOU DO TO MARKET THE THREE
19 NEWSPAPERS?
20 A. WE -- AS I SAID BEFORE, WE CALLED A NUMBER OF DIFFERENT
21 PEOPLE WHO WE THOUGHT WOULD BE INTERESTED BUYERS. WE ALSO HAD
22 FIELDED SOME INCOMING CALLS. WE SENT MATERIALS TO PEOPLE WHO
23 WE THOUGHT WERE QUALIFIED AS BUYERS OF THE NEWSPAPERS; AND, YOU
24 KNOW, STARTED ANSWERING QUESTIONS. TO THE EXTENT THEY REVIEWED
25 OUR MATERIALS AND WANTED FOLLOWUP INFORMATION, WE SENT IT TO 698
GREENTHAL - DIRECT / LINDSTROM
1 THEM.
2 Q. DID YOU PREPARE SOME KIND OF OFFERING, BOOK OR MEMORANDUM
3 THAT DESCRIBED THE PAPERS?
4 A. YES. I TESTIFIED TO THAT EARLIER.
5 MR. LINDSTROM: YOUR HONOR, MAY I APPROACH?
6 THE COURT: YOU MAY.
7 MR. LINDSTROM: LET ME PLACE BEFORE THE WITNESS
8 PLAINTIFF'S EXHIBIT 6 IN EVIDENCE.
9 Q. ARE YOU FAMILIAR WITH THIS DOCUMENT?
10 A. YES.
11 Q. WHAT IS IT?
12 A. IT IS THE CONFIDENTIAL INFORMATION MEMORANDUM RELATED TO
13 THE THREE NEWSPAPERS AND SF GATE.
14 Q. WAS THIS DOCUMENT PREPARED BY DLJ?
15 A. YES, IT WAS.
16 Q. TO WHOM DID YOU DISTRIBUTE THIS OFFERING MEMORANDUM OR
17 BROCHURE?
18 A. TO PEOPLE WHO WE VIEWED AS QUALIFIED INTERESTED BUYERS.
19 Q. AND HOW MANY QUALIFIED INTERESTED BUYERS DID YOU
20 DISTRIBUTE THIS PACKAGE TO?
21 A. THE NUMBER WAS OVER 40. I BELIEVE IT WAS 45.
22 Q. IN THIS DOCUMENT DID YOU ALERT PROSPECTIVE BUYERS TO THE
23 EXISTENCE OF THE JOA?
24 A. YES.
25 Q. DID YOU DO ANYTHING ELSE TO ALERT PROSPECTIVE BUYERS TO 699
GREENTHAL - DIRECT / LINDSTROM
1 THE PROVISIONS OF THE JOA?
2 A. YES. IN ADDITION TO SENDING THIS DOCUMENT OUT, WE ALSO
3 SENT A COPY OF THE JOA TO THE BUYERS.
4 Q. YOU MENTIONED THAT SOME 45 PROSPECTIVE PURCHASERS RECEIVED
5 THIS MATERIAL; IS THAT RIGHT?
6 A. CORRECT.
7 Q. DID YOU PERSONALLY HAVE ANY SUBSEQUENT DIALOGUE WITH
8 PURCHASERS THAT YOU REGARDED AS HAVING A SIGNIFICANT INTEREST
9 IN PURCHASING THE CHRONICLE?
10 A. YES, I DID.
11 Q. AND WITH WHOM DID YOU PERSONALLY SPEAK?
12 A. THERE WERE THREE COMPANIES IN ADDITION TO HEARST WHO WERE
13 SERIOUSLY INTERESTED IN PURSUING AN ACQUISITION OF THE
14 CHRONICLE AND ALSO THE REST OF THE PAPERS, BUT REALLY DRIVEN BY
15 THEIR INTEREST IN THE CHRONICLE. THEY WERE GANNETT,
16 KNIGHT-RIDDER AND TIMES MIRROR.
17 Q. AT ANY POINT IN TIME DID YOU TALK WITH DEAN SINGLETON?
18 A. YES.
19 Q. DID YOU SPEAK WITH HOLLINGER?
20 A. YES.
21 Q. WITH RESPECT TO THE THREE MEDIA COMPANIES THAT YOU'VE
22 IDENTIFIED, TAKING EACH IN TURN, WITH WHOM DID YOU SPEAK AT
23 GANNETT?
24 A. WITH DOUG MC CORKINDALE.
25 Q. AND WHO WAS MR. MC CORKINDALE? 700
GREENTHAL - DIRECT / LINDSTROM
1 A. AT THE TIME HE WAS THE PRESIDENT AND VICE-CHAIRMAN OF
2 GANNETT. HE WAS RECENTLY PROMOTED TO CEO OR IS IN THE PROCESS
3 OF BEING PROMOTED TO CEO.
4 Q. DOES GANNETT HAVE A PRESENCE IN THIS MARKET?
5 A. YES.
6 Q. AND WHAT PAPER DOES GANNETT OWN IN THIS MARKET?
7 A. I BELIEVE IT'S THE MARIN PAPER.
8 Q. THE MARIN INDEPENDENT JOURNAL?
9 A. UH-HUH.
10 Q. TO YOUR KNOWLEDGE WAS THAT PAPER WITHIN 60 MILES OF SAN
11 FRANCISCO?
12 A. I BELIEVE IT IS WITHIN 60 MILES.
13 Q. WOULD YOU DESCRIBE FOR THE COURT IN SUMMARY FORM THE
14 DISCUSSIONS THAT TOOK PLACE BETWEEN YOURSELF AND GANNETT?
15 A. DURING THE WHOLE PERIOD OF OUR CONVERSATION? AT WHAT
16 POINT?
17 Q. WELL, LET ME SEE IF I CAN GO DIRECTLY TO THE POINT. DID
18 GANNETT EXPRESS AN INTEREST IN PURSUING A POSSIBLE PURCHASE OF
19 THE CHRONICLE?
20 A. YES, THEY DID.
21 Q. AT ANY POINT IN TIME DID MR. MC CORKINDALE INDICATE WHAT
22 KIND OF A PRICE THAT GANNETT MIGHT BE WILLING TO PAY FOR THE
23 PAPER?
24 MR. ALIOTO: THIS IS OFFERED FOR THE FRAME OF MIND
25 OF THIS WITNESS AS I UNDERSTAND IT. 701
GREENTHAL - DIRECT / LINDSTROM
1 MR. LINDSTROM: YES.
2 THE COURT: YES.
3 THE WITNESS: YES, HE DID.
4 THE COURT: LET'S BE CLEAR. THIS IS THE WITNESS'
5 UNDERSTANDING OF WHETHER GANNETT HAD AN INTEREST IN THE
6 CHRONICLE ALONE OR IN ALL THREE PAPERS?
7 THE WITNESS: WAS THAT A QUESTION?
8 BY MR. LINDSTROM:
9 Q. WELL, LET ME POSE THE QUESTION. WAS GANNETT INTERESTED IN
10 ALL THREE PAPERS?
11 A. GANNETT WAS MOSTLY INTERESTED IN THE CHRONICLE. THEY WERE
12 WILLING TO BUY THE OTHER TWO NEWSPAPERS TO BUY IT. THEY
13 ACTUALLY INDEPENDENTLY PURSUED ONE OF THE OTHER PAPERS EVEN
14 AFTER THE CHRONICLE WAS SOLD.
15 Q. WHICH PAPER?
16 A. THE WORCESTER NEWSPAPER.
17 Q. IN MASSACHUSETTS?
18 A. UH-HUH.
19 Q. FOCUSING YOUR ATTENTION ON DISCUSSIONS THAT YOU HAD WITH
20 GANNETT ABOUT POSSIBLE INTEREST IN PURCHASING THE CHRONICLE,
21 DID THEY EVER GIVE YOU ANY KIND OF AN INDICATION OF WHAT THEY
22 MIGHT BE WILLING TO PAY FOR THAT PAPER?
23 A. YES.
24 Q. AND WHAT WERE YOU TOLD?
25 A. DOUG BASICALLY SAID TO ME THAT THEIR VALUATION WAS, AND, 702
GREENTHAL - DIRECT / LINDSTROM
1 AGAIN, I'M NOT SURE EXACTLY WHAT IT WAS, BUT MY IMPRESSION WAS
2 IT WAS IN THE HIGH 400'S, LOW 500 MILLION. THEY HAD BEEN
3 LOOKING AT IT AS A PACKAGE, AND I'D ASKED HIM TO TRY TO GET A
4 CLEARER UNDERSTANDING OF HOW HE WAS THINKING ABOUT THE VALUE OF
5 THE CHRONICLE AND THAT'S WHAT HE INDICATED TO ME.
6 Q. IN YOUR MIND WAS GANNETT A SERIOUS BUYER?
7 A. YES.
8 Q. YOU MENTIONED EARLIER YOU HAD DISCUSSIONS WITH
9 KNIGHT-RIDDER; IS THAT RIGHT?
10 A. YES.
11 Q. DID ANY OF THOSE DISCUSSIONS INCLUDE POSSIBLE INTEREST BY
12 THAT ORGANIZATION IN PURCHASING THE CHRONICLE?
13 A. YES.
14 Q. AND WITH WHOM DID YOU SPEAK?
15 A. TONY RIDDER.
16 Q. NOW, KNIGHT-RIDDER, I THINK YOU'VE TOLD US ALREADY,
17 OPERATES PAPERS WITHIN 60 MILES OF SAN FRANCISCO; IS THAT
18 RIGHT?
19 A. THAT'S RIGHT.
20 Q. WHICH PAPERS ARE THOSE?
21 A. THE SAN JOSE MERCURY NEWS AND THEY ALSO HAVE THE CONTRA
22 COSTA PAPER, I BELIEVE.
23 Q. WAS MR. RIDDER INTERESTED IN PURSUING A POSSIBLE PURCHASE
24 OF THE CHRONICLE?
25 A. YES. 703
GREENTHAL - DIRECT / LINDSTROM
1 Q. AND WHAT DID HE TELL YOU IN THAT REGARD?
2 A. HE -- WE HAD A NUMBER OF CONVERSATIONS, AND HE BASICALLY
3 TOLD ME THAT THEY REALLY WANTED TO BUY THE CHRONICLE. THEY
4 WERE QUITE INTERESTED IN IT, AND WERE PURSUING IT VERY
5 AGGRESSIVELY. THEY DID A LOT OF WORK ON IT. THEY HAD AN
6 INVESTMENT BANKER RETAINED TO HELP THEM EVALUATE IT, AND THEY
7 PURSUED IT VERY AGGRESSIVELY.
8 Q. TO YOUR KNOWLEDGE WAS MR. RIDDER AWARE OF THE 60-MILE
9 RADIUS CLAUSE RESTRICTION?
10 A. YES, HE WAS.
11 Q. WAS HE AWARE OF THE FIRST-RIGHT-OF-REFUSAL PROVISION TO
12 YOUR KNOWLEDGE?
13 A. YES.
14 Q. DID MR. RIDDER EVER GIVE YOU ANY KIND OF AN INDICATION OF
15 WHAT HE MIGHT BE WILLING TO PAY FOR THE CHRONICLE?
16 A. YES, HE DID.
17 Q. AND WHAT INDICATION DID HE GIVE YOU?
18 A. HE BASICALLY GAVE ME AN INDICATION THAT SUGGESTED THAT
19 THEY WERE IN THE LOW FOUR -- LOW TO MID-400'S, I BELIEVE IS
20 WHAT HE SAID, MILLION-DOLLAR NUMBER FOR THE CHRONICLE ALONE.
21 Q. WAS HE LIKEWISE INTERESTED IN ANY OF THE OTHER PAPERS?
22 A. HE WAS -- I WOULD DESCRIBE HIM AS LESS INTERESTED IN THE
23 OTHER TWO PAPERS BUT CLEARLY WILLING TO PURCHASE THEM TO BUY
24 THE CHRONICLE. AND KNIGHT-RIDDER IS A NEWSPAPER COMPANY
25 GENERALLY SO, YOU KNOW, IT WAS NOT INCONSISTENT WITH CORPORATE 704
GREENTHAL - DIRECT / LINDSTROM
1 STRATEGY TO BUY MORE NEWSPAPERS.
2 Q. YOU MENTIONED THAT YOU HAD DISCUSSIONS WITH TIMES MIRROR
3 AS WELL; IS THAT RIGHT?
4 A. YES.
5 Q. WITH WHOM DID YOU SPEAK AT THAT ORGANIZATION?
6 A. WITH TOM UNTERMAN.
7 Q. WHAT WAS HIS ROLE, AS YOU UNDERSTOOD IT?
8 A. AT THAT POINT HE WAS CHIEF FINANCIAL OFFICER OF TIMES
9 MIRROR.
10 Q. DID MR. UNTERMAN EXPRESS INTEREST IN A POSSIBLE
11 ACQUISITION BY TIMES MIRROR OF THE CHRONICLE?
12 A. YES, HE DID.
13 Q. WAS THERE ANY DISCUSSION WITH HIM ABOUT INTEREST IN THAT
14 ORGANIZATION IN EITHER OF THE OTHER PAPERS?
15 A. AGAIN, I THINK HE WAS SOMEWHAT IN KNIGHT-RIDDER'S CAMP,
16 WHICH IS HE WAS CLEARLY PREPARED TO BUY THEM, WAS NOT ADVERSE
17 TO BIDDING ON THEM.
18 AS A MATTER OF FACT, NOW THAT I'M THINKING ON IT, I
19 DO BELIEVE THEY BID ON AT LEAST ONE OF THE OTHER NEWSPAPERS
20 SEPARATELY, IF NOT BOTH OF THEM, EVEN AFTER THE CHRONICLE WAS
21 GONE. SO I GUESS IN SOME WAYS HE WAS WILLING -- HE WAS
22 INTERESTED IN BUYING THEM AS WELL.
23 Q. FOCUSING ON THE CHRONICLE, WHAT DISCUSSIONS DID YOU HAVE
24 WITH MR. UNTERMAN REGARDING A POSSIBLE PURCHASE BY TIMES
25 MIRROR? 705
GREENTHAL - DIRECT / LINDSTROM
1 A. WE TALKED ABOUT IT AT LENGTH. HE -- THEY WERE QUITE
2 INTERESTED IN THE SAN FRANCISCO MARKET AND IN THE PAPER
3 SPECIFICALLY. IT WAS A PRETTY NATURAL FIT GIVEN THEY WERE
4 THE -- THEY HAD THE LOS ANGELES PAPER.
5 Q. DID HE TELL YOU WHY IT WAS THEY THOUGHT IT WAS A NATURAL
6 FIT?
7 A. I THINK THEY, YOU KNOW, LOOKED AT THEIR POSITION WITHIN
8 THE CALIFORNIA -- THE GREATER SORT OF STATE OF CALIFORNIA
9 THINKING -- THEY THOUGHT THAT OWNING THE NEWSPAPERS IN THE TWO
10 LARGEST MARKETS WOULD GIVE THEM AN INTERESTING POSITION
11 STRATEGICALLY.
12 Q. DID TIMES MIRROR HAVE A PRESENCE IN THE SAN FRANCISCO BAY
13 AREA MARKETPLACE?
14 A. NOT THAT I KNEW OF.
15 Q. DID MR. UNTERMAN GIVE YOU ANY KIND OF INDICATION OF THE
16 PRICE THAT TIMES MIRROR MIGHT BE WILLING TO PAY FOR THE
17 CHRONICLE?
18 A. MY DISCUSSIONS WITH HIM ARE LESS -- I RECOLLECT LESS
19 CLEARLY; BUT, AGAIN, MY IMPRESSION WAS THAT HE WAS IN THE
20 NEIGHBORHOOD, WHICH WAS CONSISTENT WITH WHERE GANNETT WAS.
21 Q. 400'S TO LOW 500 MILLION?
22 A. YES.
23 Q. HOW, IF AT ALL, DID THE FIRST RIGHT OF REFUSAL IMPACT YOUR
24 ABILITY TO MARKET THE CHRONICLE TO THESE THREE PROSPECTIVE
25 PURCHASERS? 706
GREENTHAL - DIRECT / LINDSTROM
1 A. THE RIGHT OF FIRST REFUSAL MEANT THAT WE HAD TO SORT OF
2 STRUCTURALLY DEAL WITH THE FACT THAT IT EXISTS SO THAT WE
3 WEREN'T TRIGGERED IN GIVING HEARST AN UNFAIR, YOU KNOW, SHOT AT
4 THIS. BUT I THINK AT THE END OF THE DAY IN TERMS OF PEOPLE
5 BEING WILLING TO PURCHASE THE PAPER, IT REALLY DIDN'T PLAY A
6 BIG ROLE IN IT.
7 Q. HOW, IF AT ALL, DID THE EXISTENCE OF THE 60-MILE RADIUS
8 CLAUSE AFFECT YOUR ABILITY TO MARKET THE PAPER TO THESE THREE
9 PROSPECTIVE PURCHASERS?
10 A. IT DIDN'T.
11 Q. TO YOUR KNOWLEDGE, WERE THESE THREE BUYERS AWARE THAT THE
12 CHRONICLE ONLY POSSESSED HALF OF THE HARD ASSETS THAT WOULD BE
13 NECESSARY TO PUT THE PAPER OUT?
14 A. THEY WERE AWARE THAT THE JOA SAID THAT THEY OWNED
15 50 PERCENT OF THE ASSETS, ABSOLUTELY. THEY ALL HAD COPIES OF
16 THE JOA.
17 Q. HOW DID THAT FACT IMPACT YOUR ABILITY TO MARKET THIS
18 COMPANY, IF IT DID?
19 A. IT DIDN'T REALLY AFFECT OUR ABILITY TO MARKET IT. IT WAS
20 A VALUATION ISSUE. TO THE EXTENT THAT THERE ARE ASSETS THAT
21 YOU NEED TO OPERATE THE BUSINESS THAT YOU DON'T OWN, YOU HAVE
22 TO GO REASONABLY SECURE THOSE ASSETS, BUT IT CERTAINLY DIDN'T
23 AFFECT MARKETABILITY OF IT.
24 Q. HOW DID THE FACT THAT THE JOA WAS DUE TO EXPIRE IN 2005
25 AFFECT YOUR ABILITY TO MARKET THE PAPER, IF IT DID? 707
GREENTHAL - DIRECT / LINDSTROM
1 A. IT DIDN'T.
2 Q. HOW IF AT ALL DID IT RELATE TO THE VALUATION ISSUE AS
3 YOU'VE DESCRIBED IT?
4 A. WELL, HEARST WAS ENTITLED TO A CERTAIN STREAM OF PAYMENTS
5 RELATED TO THE REVENUE -- THE SHARING OF THE EXCESS -- THE NET
6 EXCESS AS OUTLINED IN THE JOA, AND SO A BUYER WOULD HAVE TO
7 LOOK AT THE STREAM OF CASH FLOW FROM -- YOU KNOW, THAT WAS
8 GOING TO HAVE TO BE PAID TO THE EXAMINER AND FACTOR THAT INTO
9 THEIR VALUATION THINKING. BUT IT WAS A VALUE -- IT WAS
10 LITERALLY A CALCULATION THE BUYER COULD MAKE AND GET THEIR ARMS
11 AROUND. THE FACT THAT THE PAYMENT WAS MADE WAS A FINANCIAL
12 ISSUE. IT WASN'T AN OBSTACLE TO SELLING THE PAPER.
13 Q. DID YOU AT DLJ MAKE ANY ATTEMPT TO VALUE THAT PAYMENT
14 STREAM THAT WAS OWED TO HEARST UNDER THE REMAINING TERM OF THE
15 JOA?
16 A. WE DID.
17 Q. AND WHAT DID YOU CONCLUDE?
18 A. THE CALCULATION, WHICH I DIDN'T PERSONALLY MAKE BUT WHICH
19 WAS ADVISED BY COLLEAGUES OF MINE WHO WENT THROUGH DOING MATH,
20 IT HAD A PRESENT VALUE OF JUST UNDER $90 MILLION.
21 THE COURT: JUST UNDER WHAT?
22 THE WITNESS: 90 MILLION. ON A PRESENT VALUE BASIS
23 IF YOU LOOKED AT THE FLOW OF PAYMENTS OVER THE NEXT SIX YEARS.
24 THE COURT: AND THAT WAS AS OF WHAT DATE?
25 THE WITNESS: AS OF THE SORT OF JUNE-JULY TIMEFRAME. 708
GREENTHAL - DIRECT / LINDSTROM
1 THE COURT: JUNE, '99?
2 THE WITNESS: YES.
3 THE COURT: PRESUMABLY THAT'S SUBSTANTIALLY LESS
4 NOW?
5 THE WITNESS: EVERY DAY, YES.
6 THE COURT: YES.
7 BY MR. LINDSTROM:
8 Q. HOW DID HEARST FIGURE INTO THIS AUCTION PROCESS THAT YOU
9 DESCRIBED?
10 A. AGAIN, WE WENT THROUGH A QUITE ELABORATE DISCUSSION WITH
11 THE BOARD, WITH THE LAWYERS, WITH EVERYBODY WHO WAS INVOLVED IN
12 THIS TO TRY TO CONSTRUCT A PROCESS THAT WOULD GIVE US THE
13 MAXIMUM MARKET TO SELL THE PROPERTY TO AND WOULD CREATE THE
14 BEST NEGOTIATING DYNAMICS AS IT RELATED TO HEARST.
15 HEARST TRIED TO PREEMPT OUR PROCESS, EFFECTIVELY
16 COMING IN AND MAKING A PROPOSAL TO US PRIOR TO THE TIME WE WENT
17 INTO THE MARKET; AND WE BASICALLY TOLD THEM WE WEREN'T
18 INTERESTED AND PROCEEDED INTO THE MARKET AND SOLD -- AND
19 SHIPPED MATERIALS OUT TO EVERYBODY WHO HAD EXPRESSED AN
20 INTEREST.
21 Q. LET ME GO BACK AND FOLLOW UP ON THAT POINT. YOU INDICATED
22 THAT YOU RECEIVED A BID FROM HEARST; IS THAT RIGHT?
23 A. CORRECT.
24 Q. HOW MUCH DID HEARST BID AT THAT TIME?
25 A. AGAIN, THIS IS PRIOR TO OUR MAILING INFORMATION TO OTHER 709
GREENTHAL - DIRECT / LINDSTROM
1 BUYERS. THEY SENT A LETTER TO JOHN SIAS, WHICH WAS DELIVERED
2 BY FRANK BENNACK, OFFERING NO LESS THAN $565 MILLION.
3 Q. WHAT WAS THE RESPONSE TO THAT BID BY HEARST OF NO LESS
4 THAN $565 MILLION?
5 A. WE BASICALLY COMMUNICATED TO THEM THAT WE DIDN'T BELIEVE
6 IT WAS A PREEMPTIVE OFFER AND WE WERE GOING FORWARD WITH OUR
7 PROCESS.
8 Q. WHAT DO YOU MEAN BY A "PREEMPTIVE OFFER," AS YOU'VE USED
9 THAT TERM HERE TODAY?
10 A. WELL, "PREEMPTIVE" MEANS AN OFFER THAT MAKES YOU STOP YOUR
11 PROCESS THAT YOU'RE ENGAGED IN, BASICALLY TAKES THE PROPERTY
12 OFF THE TABLE PRIOR TO THE CONCLUSION OF THE PROCESS THAT YOU
13 EXPECT TO GO THROUGH.
14 Q. AT THE TIME YOU RECEIVED THE NOT LESS THAN $565 MILLION
15 FROM HEARST, HAD YOU HAD THE DISCUSSIONS THAT YOU'VE TOLD US
16 ABOUT WITH GANNETT?
17 A. NO.
18 Q. KNIGHT-RIDDER?
19 A. AS RELATES TO WHERE THEY WERE IN VALUE, THE ANSWER IS NO.
20 WE HADN'T EVEN MAILED INFORMATION. WE KNEW ALL THOSE COMPANIES
21 WERE INTERESTED, THOUGH.
22 Q. WOULD IT BE FAIR TO SAY THAT INFORMATION CAME LATER?
23 A. CORRECT.
24 Q. AFTER THIS INITIAL OFFER FROM HEARST, WERE THERE FURTHER
25 NEGOTIATIONS WITH THAT ORGANIZATION? 710
GREENTHAL - DIRECT / LINDSTROM
1 A. YES. THOSE DEVELOPED OVER TIME.
2 Q. DID YOU CONDUCT THOSE YOURSELF?
3 A. YES, AS IT RELATES TO PRICE.
4 Q. HAD HEARST RETAINED THE SERVICES OF AN INVESTMENT BANKER
5 TO REPRESENT THEM?
6 A. YES, THEY DID. THEY DID.
7 Q. WHICH FIRM?
8 A. WASSERSTEIN PERELLA.
9 Q. WHO AT THAT FIRM?
10 A. BRUCE WASSERSTEIN.
11 Q. AT SOME POINT IN TIME DID YOU AND MR. WASSERSTEIN HAVE
12 DISCUSSIONS ABOUT THE PRICE THAT THE CHRONICLE MIGHT BE WILLING
13 TO SELL THE PAPER FOR?
14 A. YES.
15 Q. WOULD YOU DESCRIBE THOSE FOR THE COURT?
16 A. I'LL TRY TO GIVE YOU A SENSE OF HOW THE DISCUSSION WENT.
17 IT STARTED WITH THE 565 PRICE. WE TOLD THEM TO GO AWAY.
18 HE THEN WAS TRYING TO FIND THE NUMBER WHICH WE WOULD
19 BE WILLING TO SELL THE NEWSPAPER AND --
20 MR. ALIOTO: AGAIN, YOUR HONOR, I TAKE IT THAT THIS
21 IS INTRODUCED FOR THE FRAME OF MIND OF THIS WITNESS BECAUSE NOW
22 SHE'S NOT ONLY SAYING -- ATTEMPTING TO SAY WHAT THIS OTHER
23 PERSON SAID, BUT ALSO WHAT HE WAS THINKING.
24 MR. LINDSTROM: YOUR HONOR, MAY I MAKE A PROFFER?
25 THE COURT: VERY WELL. 711
GREENTHAL - DIRECT / LINDSTROM
1 MR. LINDSTROM: WHERE THIS EXAMINATION IS LEADING,
2 AS I THINK THE COURT SUSPECTS, IS A PRESENTATION TO THE BOARD
3 AND A FAIRNESS OPINION RENDERED BY THIS WITNESS REGARDING THE
4 PRICE THAT WAS OFFERED. THERE'S BEEN TESTIMONY DURING THE
5 COURSE OF THE TRIAL THAT THE PRICE THAT WAS ULTIMATELY PAID BY
6 HEARST WAS BOTH TOO LOW AND TOO HIGH, AND I BELIEVE THIS
7 WITNESS' STATE OF MIND, AS IT RELATES TO THE PRICE THAT WAS
8 ULTIMATELY AGREED TO AND THE FAIRNESS OPINION THAT WAS
9 RENDERED, IS HIGHLY RELEVANT TO THE COURT'S PROCEEDINGS AND IS
10 NOT BEING OFFERED FOR THE TRUTH OF THE MATTER ASSERTED BUT
11 MAINLY HER STATE OF MIND IN RENDERING THAT FAIRNESS OPINION.
12 THE COURT: WELL, IS THIS WITNESS ABLE TO TELL US
13 ABOUT HEARST'S STATE OF MIND? SHE CAN TESTIFY AS TO HER STATE
14 OF MIND, BUT CAN SHE READ THE MIND OF THE HEARST CORPORATION?
15 MR. LINDSTROM: NO. I THINK THAT SHE CAN TELL US
16 WHAT HEARST SAID, AND I'M NOT ELICITING FROM HER HER
17 SPECULATION ABOUT HEARST'S STATE OF MIND NOR DID THE QUESTION
18 CALL FOR THAT.
19 THE COURT: LET'S SEE WHAT THE PENDING QUESTION WAS.
20 MR. LINDSTROM: DESCRIBE THE DISCUSSIONS RELATING TO
21 PRICE.
22 THE COURT: THE DISCUSSION WITH MR. WASSERSTEIN?
23 MR. LINDSTROM: CORRECT. YOUR HONOR, I'LL REFRAME
24 THE QUESTION.
25 THE COURT: WELL, NO, I UNDERSTAND WHERE YOU'RE 712
GREENTHAL - DIRECT / LINDSTROM
1 GOING WITH THIS AND I THINK THAT'S FAIR ENOUGH; BUT IF YOU WISH
2 TO PIN IT DOWN A LITTLE MORE PRECISELY, I'M NOT GOING TO STAND
3 IN YOUR WAY, COUNSEL.
4 BY MR. LINDSTROM:
5 Q. WHAT WAS THE NEXT INDICATION OF PRICE THAT CAME FROM
6 HEARST?
7 A. AGAIN, I GOT THROUGH THE BACKGROUND. I HAD SUGGESTED TO
8 THEM THAT THE CHRONICLE SHAREHOLDERS, I BELIEVE, WOULD BE
9 WILLING TO SELL THE PAPER FOR $700 MILLION. BRUCE THEN MADE
10 THE SUGGESTION THAT WE SHOULD MEET IN THE MIDDLE; AND I
11 CORRECTED HIM THAT MAYBE HE HADN'T HEARD THE FIRST PART OF WHAT
12 I HAD SAID TO HIM, WHICH IS THAT WE WERE NOT IN THE MIDDLE. WE
13 WERE AT 700 MILLION.
14 WE THEN HAD A CONTINUING DIALOGUE ABOUT VALUE OF
15 DIFFERENT COMPONENTS OF THE COMPANY, AND THE NEXT INDICATION
16 THAT I GOT FROM HIM WAS A NUMBER AT 660 MILLION.
17 Q. DID YOU VIEW THAT PRICE AS AN ATTRACTIVE ONE?
18 A. I DID.
19 Q. DID YOU BELIEVE AT THAT TIME THAT IT WAS HIGHER THAN ANY
20 OTHER PRICE THAT THE CHRONICLE WOULD EXPECT TO GET FOR THE
21 PAPER FROM THIRD-PARTY BUYERS?
22 A. I BELIEVED THAT IT WAS THE HIGHEST PRICE THEY WERE GOING
23 TO SEE, AND IN SUBSEQUENT CONVERSATIONS WAS ABLE TO FURTHER GET
24 COMFORT ON THAT FACT.
25 Q. AND HOW DID YOU DO THAT? 713
GREENTHAL - DIRECT / LINDSTROM
1 A. THROUGH DISCUSSIONS WITH OTHER BUYERS WHO WERE STILL IN
2 THE MARKET AT THE TIME.
3 Q. AND HAVE YOU TOLD THE COURT ABOUT THOSE DISCUSSIONS?
4 A. I HAVE.
5 Q. THOSE ARE THE INDICATIONS OF WILLINGNESS TO PAY SOMETHING
6 ON THE ORDER OF FOUR TO LOW 500 MILLION FROM GANNETT,
7 KNIGHT-RIDDER AND TIMES MIRROR?
8 A. CORRECT.
9 Q. AT SOME POINT IN TIME DID YOU PRESENT THE HEARST PROPOSAL
10 OF $660 MILLION TO THE BOARD OF DIRECTORS OF CHRONICLE
11 PUBLISHING?
12 A. WE DID.
13 Q. IN CONNECTION WITH THAT PRESENTATION, DID YOU RENDER A
14 FAIRNESS OPINION?
15 A. YES, WE DID.
16 Q. WHAT IS A FAIRNESS OPINION?
17 A. A FAIRNESS OPINION IS AN EXPRESSION BY A FINANCIAL
18 INSTITUTION, PARTICULARLY TO AN INVESTMENT BANK, WITH RESPECT
19 TO THE FAIRNESS OF THE TRANSACTION TO THE SHAREHOLDERS TAKING
20 INTO ACCOUNT ALL FACTORS WHICH ARE DEEMED RELEVANT IN THEIR
21 CONSIDERATION.
22 Q. DID YOU MAKE THIS PRESENTATION YOURSELF?
23 A. YES.
24 MR. LINDSTROM: YOUR HONOR, MAY I APPROACH?
25 THE COURT: YOU MAY. 714
GREENTHAL - DIRECT / LINDSTROM
1 MR. LINDSTROM: LET ME PLACE BEFORE THE WITNESS,
2 YOUR HONOR, WHAT'S BEEN MARKED BOTH AS PLAINTIFF'S EXHIBIT 9
3 AND THE IDENTICAL DOCUMENT IS H-0950, A HEARST DOCUMENT. I
4 BELIEVE THEY'RE BOTH IN EVIDENCE.
5 Q. WHAT IS THIS DOCUMENT?
6 A. THIS IS THE PRESENTATION THAT WE MADE TO THE BOARD OF
7 DIRECTORS WITH RESPECT TO THE FAIRNESS TO THE SHAREHOLDERS OF
8 THE SALE OF THE CHRONICLE NEWSPAPER AND SF GATE.
9 Q. DID YOU MAKE THIS PRESENTATION ON AUGUST 6, 1999?
10 A. YES, WE DID.
11 Q. DID YOU WALK THE BOARD OF DIRECTORS THROUGH PAGE 2,
12 "UPDATE ON SALE PROCESS"?
13 A. YES, WE DID.
14 Q. I NOTICE THAT YOU INDICATE IN THE LAST BULLET POINT THAT
15 DLJ HAD REQUESTED PRELIMINARY BIDS TO BE DUE AUGUST 10TH. DO
16 YOU SEE THAT REFERENCE?
17 A. YEP.
18 Q. THIS MEETING WAS ON AUGUST 6; IS THAT RIGHT?
19 A. CORRECT.
20 Q. CAN YOU EXPLAIN TO THE COURT WHY IT WAS YOU WERE
21 PRESENTING THE HEARST PROPOSAL BEFORE THE DATE FOR PRELIMINARY
22 BIDS FROM THIRD PARTIES?
23 A. BECAUSE HEARST HAD, YOU KNOW, DURING THE COURSE OF OUR
24 DISCUSSIONS, IMPROVED THEIR BID TO 660 MILLION, AND IT
25 PRESENTED US WITH A CONTRACT WHICH WE FOUND VERY ATTRACTIVE. 715
GREENTHAL - DIRECT / LINDSTROM
1 AND IT WAS OUR BELIEF THAT WAS THE BEST CONCLUSION WE WERE
2 GOING TO REACH AND WE WERE PREPARED TO SIGN A TRANSACTION WITH
3 THEM AND SHUT OUR PROCESS DOWN AS RELATED TO THE CHRONICLE. WE
4 HAD A PRETTY GOOD SENSE OF WHAT WE WERE GOING TO GET AND
5 DECIDED THAT IT WAS IN EVERYBODY'S INTEREST TO SIGN THIS DEAL
6 NOW.
7 Q. DID YOU REGARD THE $660 MILLION OFFER FROM HEARST AS
8 PREEMPTIVE?
9 A. AT THAT POINT, YES.
10 Q. NOW, YOU MENTIONED SOMETHING ABOUT A CONTRACT THAT HAD
11 BEEN OFFERED BY HEARST A FEW MOMENTS AGO. WAS THERE SOMETHING
12 ABOUT THE HEARST CONTRACT THAT WAS MORE FAVORABLE THAN YOU
13 EXPECTED FROM OTHER BUYERS?
14 A. THE ANSWER IS YES. BY VIRTUE OF THE FACT THAT THEY HAD
15 BEEN IN, YOU KNOW, AN OPERATING RELATIONSHIP WITH THE CHRONICLE
16 FOR 35 PLUS YEARS, THEY KNEW EVERYTHING THERE WAS TO KNOW ABOUT
17 THE BUSINESS AND THEY WERE, THEREFORE, WILLING TO SIGN A
18 CONTRACT WHICH WAS QUITE FAVORABLE TO THE SELLERS IN TERMS OF
19 THE -- YOU KNOW, ALL THE REPRESENTATIONS AND WARRANTIES THAT
20 NEEDED TO BE MADE BY THE SELLER.
21 THE OTHER THING THAT WAS CRITICALLY IMPORTANT TO THE
22 SHAREHOLDERS WAS THAT THEY AGREED TO EMPLOY ALL THE EMPLOYEES,
23 AND THAT WAS A VERY IMPORTANT THING FROM MY CLIENT'S
24 STANDPOINT. THEY WANTED TO MAKE SURE THAT THE EMPLOYEES WERE
25 GOING TO BE TAKEN CARE OF. 716
GREENTHAL - DIRECT / LINDSTROM
1 Q. AS OF THE DATE THAT YOU MADE THIS PRESENTATION TO THE
2 BOARD, AUGUST 6TH, HAD THE FORM OF THE CONTRACT BETWEEN HEARST
3 AND CHRONICLE PUBLISHING BEEN AGREED TO?
4 A. YES. IT WAS EFFECTIVELY COMPLETE AND READY TO BE SIGNED
5 IF THE BOARD APPROVED THE TRANSACTION.
6 Q. LET ME DIRECT YOUR ATTENTION TO PAGE 3 OF YOUR BOARD
7 PRESENTATION, AND THIS AGAIN IS PLAINTIFF'S EXHIBIT 9, H-0950
8 IN EVIDENCE. DID YOU WALK THE BOARD THROUGH THE PROVISIONS OF
9 THIS PAGE?
10 A. WE DID AND IN CONJUNCTION WITH LEGAL COUNSEL AS WELL.
11 Q. LET ME ZOOM IN HERE.
12 THE FIRST BULLET POINT YOU INDICATE THAT THE
13 PROPOSED TRANSACTION HAS THE FOLLOWING SIGNIFICANT TERMS AND
14 THEN YOU LIST A NUMBER.
15 A. UH-HUH.
16 Q. RIGHT?
17 A. YES.
18 Q. THE FIRST RELATES TO THE PURCHASE OF ASSETS OF SAN
19 FRANCISCO CHRONICLE AND SF GATE. YOU'VE MENTIONED SF GATE A
20 NUMBER OF TIMES THIS MORNING. WHAT IS THAT?
21 A. IT'S THE WEBSITE THAT RELATES TO THE CHRONICLE AND THE
22 EXAMINER, ALSO THE -- ALSO CHRON AT THAT POINT.
23 Q. WAS THAT SOLD WITH THE PAPER?
24 A. YES, IT WAS.
25 Q. OR TO BE SOLD WITH THE PAPER? 717
GREENTHAL - DIRECT / LINDSTROM
1 A. YES, IT WAS.
2 Q. AND WAS THE SF GATE INCLUDED IN THE PURCHASE PRICE OF
3 $660 MILLION?
4 A. YES.
5 Q. WHAT'S THE SIGNIFICANCE -- WHAT WAS THE SIGNIFICANCE OF
6 THIS NEXT BULLET POINT, "NO MATERIAL ADVERSE CHANGE PROVISION"?
7 A. IT EFFECTIVELY MEANT THAT SINCE THEY WERE 50 PERCENT
8 OPERATORS OF THE CHRONICLE, THAT BETWEEN THE SIGNING OF THE
9 DOCUMENT AND THE CLOSING, THAT NO MATTER WHAT HAPPENED TO THE
10 NEWSPAPER OF A MATERIAL SENSE, IT WAS NOT GOING TO RESULT IN
11 THE CONTRACT BASICALLY BEING BREACHED OR A WALK-AWAY EVENT IF
12 YOU WILL.
13 Q. THE NEXT BULLET POINT INDICATES REPRESENTATION WARRANTIES
14 DO NOT COVER PRINTING COMPANY. WHAT WAS THE SIGNIFICANCE OF
15 THAT PROVISION?
16 A. I DON'T RECALL SPECIFICALLY WHAT THAT RELATED TO; BUT,
17 AGAIN, I BELIEVED IT WAS THAT WE DID NOT HAVE TO REP AND
18 WARRANT THE ACTIVITIES OF THE PRINTING COMPANY AS IT
19 HISTORICALLY EXISTED.
20 Q. THE NEXT ENTRY, "WORKING CAPITAL ADJUSTMENT," WHAT WAS THE
21 SIGNIFICANCE OF THAT?
22 A. I BELIEVED THAT THAT WAS TO LET THE BOARD KNOW THAT TO THE
23 EXTENT THERE WAS MORE OR LESS WORKING CAPITAL IN THE COMPANY AT
24 CLOSING, THAT IT WAS AN ADJUSTMENT TO THE PURCHASE PRICE.
25 WORKING CAPITAL IS NET ASSETS MINUS NET LIABILITIES. 718
GREENTHAL - DIRECT / LINDSTROM
1 Q. NOW, WITHOUT --
2 A. CURRENT ASSETS MINUS CURRENT LIABILITIES, EXCUSE ME.
3 Q. NOW, WITHOUT GOING THROUGH EACH AND EVERY ONE OF THESE,
4 WOULD IT BE FAIR TO SAY THAT THESE WERE THE PROVISIONS TO WHICH
5 YOU REFERRED A FEW MOMENTS AGO IN INDICATING THAT THE FORM OF
6 THE AGREEMENT PROPOSED BY HEARST WAS MORE ADVANTAGEOUS?
7 A. YES.
8 Q. NOW, LET'S TAKE YOU DOWN TO THE NEXT MAJOR POINT, "DLJ
9 BELIEVES H CORPORATION'S PROPOSED PURCHASE PRICE TO BE
10 ATTRACTIVE." DO YOU SEE THAT?
11 A. UH-HUH.
12 Q. WHO OR WHAT IS "H CORPORATION"?
13 A. THAT'S HEARST.
14 Q. THE FIRST STATEMENT YOU INDICATE THAT THE 660 MILLION IS
15 AT THE HIGH END OF DLJ'S ORIGINAL VALUATION RANGE. DO YOU SEE
16 THAT?
17 A. YES.
18 Q. BY THIS POINT IN TIME, HAD YOU MADE ADJUSTMENTS TO THE
19 VALUATION RANGE THAT YOU DESCRIBED TO YOUR HONOR EARLIER IN
20 YOUR TESTIMONY?
21 A. WELL, AGAIN, WE DID A BUNCH OF WORK SINCE THE POINT THE
22 ORIGINAL VALUATION WAS DONE AND GOT DIFFERENT SETS OF
23 PROJECTIONS FROM THE COMPANY. SO, YES, THERE WERE ADJUSTMENTS.
24 Q. AND THE ORIGINAL VALUATION RANGE PRESENTED TO THE BOARD
25 WAS AGAIN? 719
GREENTHAL - DIRECT / LINDSTROM
1 A. 610.
2 Q. THAT WAS THE HIGH END?
3 A. YES, THAT WAS THE HIGH END, ROUGHLY.
4 Q. AND IN THE NEXT BULLET POINT YOU INDICATE THAT THE HEARST
5 PROPOSED PURCHASE PRICE EXCEEDS THE VALUE DLJ ESTIMATES
6 THIRD-PARTY BUYERS WOULD BE WILLING TO PAY. DO YOU SEE THAT?
7 A. YES.
8 Q. ON WHAT DID YOU BASE THAT STATEMENT TO THE BOARD?
9 A. BASED ON AN ANALYSIS WE DID OF WHAT WE THINK -- WHAT WE
10 THOUGHT THE PROPERTY WOULD BRING TO A THIRD-PARTY BUYER BASED
11 ON A VARIETY OF DIFFERENT VALUATION TECHNIQUES.
12 Q. NOW, IS THAT ANALYSIS AND ARE THOSE VALUATION TECHNIQUES
13 PRESENTED IN THE PAGES THAT FOLLOW?
14 A. YES, THEY ARE.
15 Q. THE THIRD BULLET POINT, "RECENT DISCUSSIONS WITH POTENTIAL
16 THIRD-PARTY BUYERS HAVE CONFIRMED DLJ'S VALUATION CONCLUSIONS,"
17 WHAT WAS THAT REFERRING TO?
18 A. BASICALLY WHAT WE HAD -- WHAT WE DISCUSSED EARLIER, WHICH
19 IS THAT WE HAD HAD SOME CONVERSATIONS WITH PEOPLE WHO WE
20 THOUGHT WERE SERIOUS BIDDERS FOR THE PROPERTY THAT LED US TO
21 BELIEVE WE HAD THE BEST BID THAT WE SHOULD EXPECT TO SEE IN THE
22 MARKET.
23 Q. AND AGAIN THAT'S GANNETT, KNIGHT-RIDDER AND TIMES MIRROR?
24 A. GANNETT, KNIGHT-RIDDER AND TIMES MIRROR.
25 Q. LET ME GO TO PAGE 5 OF YOUR ANALYSIS. THIS IS A PAGE 720
GREENTHAL - DIRECT / LINDSTROM
1 ENTITLED "VALUATION SUMMARY." THIS IS A GRAPHIC DEPICTION.
2 CAN YOU DESCRIBE WHAT THIS DEPICTS FOR HIS HONOR?
3 A. IT TAKES THREE DIFFERENT VALUATION APPROACHES TO LOOKING
4 AT THE VALUE OF THE CHRONICLE. THESE ARE STANDARD MEASURES BY
5 WHICH INVESTMENT BANKERS WILL LOOK AT VALUATION.
6 THE LEFT COLUMN IS LOOKING AT MERGER AND ACQUISITION
7 COMPARABLES, TRANSACTIONS WHICH RELATE IN SOME SENSE TO THE
8 TRANSACTION THAT WE'RE LOOKING AT.
9 Q. NOW, LET ME STOP YOU THERE. THE LEFT COLUMN HAS A RANGE
10 OF VALUE FROM 153 MILLION TO 341 MILLION; IS THAT RIGHT?
11 A. CORRECT.
12 Q. AND ON WHAT COMPARABLES WAS THAT BASED?
13 A. THERE'S A LIST IN THE BACK OF THIS PRESENTATION THAT WENT
14 THROUGH THE VARIOUS TRANSACTIONS THAT WE LOOKED AT.
15 Q. OTHER MEDIA TRANSACTIONS?
16 A. OTHER NEWSPAPER TRANSACTIONS.
17 Q. NOW, THE SECOND COLUMN HAS A VALUATION RANGE OF
18 131 MILLION TO 215 MILLION. DO YOU SEE THAT?
19 A. YES.
20 Q. AND WHAT IS THAT VALUATION METHODOLOGY?
21 A. IT'S BASICALLY LOOKING AT PUBLIC TRADING LEVELS OF
22 NEWSPAPER COMPANIES. THE OVERALL ANALYSIS, AS IT RELATES TO
23 CHRONICLE, WE WOULD LOOK AT AND PUT DIFFERENT WEIGHT ON
24 DIFFERENT OF THESE VALUATION TECHNIQUES BECAUSE THE CHRONICLE
25 WAS IN A FAIRLY UNIQUE POSITION BY VIRTUE OF OPERATING AT A 721
GREENTHAL - DIRECT / LINDSTROM
1 JOA.
2 Q. THE THIRD COLUMN REFERS TO DCF ANALYSIS. DO YOU SEE THAT?
3 A. YES.
4 Q. WHAT IS DCF ANALYSIS?
5 A. DISCOUNT CASH FLOW ANALYSIS.
6 Q. CAN YOU DESCRIBE THAT METHODOLOGY FOR THE COURT?
7 A. WE EFFECTIVELY PROJECT THE FUTURE REVENUE CASH FLOW STREAM
8 FOR THE BUSINESS AND ATTEMPT TO DISCOUNT THAT BACK TO CURRENT
9 DAY TO CAPTURE IN A SINGLE NUMBER THE VALUE OF THAT CASH FLOW
10 STREAM.
11 Q. YOU MENTIONED THAT THIS VALUATION RELATED TO THIRD-PARTY
12 VALUATION; IS THAT CORRECT?
13 A. YES.
14 Q. WHAT WAS THE REASON YOU WERE VALUING THIRD PARTIES'
15 INTEREST AS OPPOSED TO THAT OF EITHER THE CHRONICLE OR HEARST?
16 A. EFFECTIVELY WE WERE LOOKING AT SOMEBODY WHO COULD BUY THE
17 PROPERTY IN THE MARKET WHO DIDN'T HAVE A PARTICIPATION
18 CURRENTLY IN THE JOA.
19 Q. NOW, I GATHER FROM THIS GRAPHIC DEPICTION THAT IN YOUR
20 MIND THE HEARST CORPORATION PROPOSAL WAS WORTH MORE THAN WHAT
21 YOU THOUGHT THIRD PARTIES WOULD BE WILLING TO PAY; IS THAT
22 RIGHT?
23 A. YES.
24 Q. CAN YOU EXPLAIN TO THE COURT WHY IT IS THAT THIS ASSET
25 WOULD BE WORTH MORE IN THE HANDS OF HEARST THAN IN A 722
GREENTHAL - DIRECT / LINDSTROM
1 THIRD-PARTY PURCHASER?
2 A. EFFECTIVELY HEARST ALREADY OWNED HALF THE ASSETS. A
3 THIRD-PARTY BUYER WOULD HAVE TO GO OUT AND BUY THE OTHER HALF
4 OF THE ASSETS TO CONTINUE TO RUN THE NEWSPAPER.
5 SO FROM THEIR -- THEIR DISCOUNTED CASH FLOW
6 ANALYSIS, THEY WOULD HAVE TO PUT IN A PAYMENT FOR THE
7 EXPENDITURE FOR THE OTHER ASSETS.
8 LIKEWISE, THE THIRD PARTY WOULD HAVE TO CONTINUE TO
9 FUND THE REMAINING SIX YEARS OF PAYMENTS UNDER THE JOA TO THE
10 HEARST CORPORATION. THAT WOULD BE A FLOW OUT OF THEIR
11 CALCULATION.
12 Q. YOU MENTIONED EARLIER THAT YOU VALUED THE OUTFLOW AT ABOUT
13 90 MILLION; RIGHT?
14 A. CORRECT.
15 Q. DID YOU MAKE ANY ATTEMPT TO VALUE WHAT THAT OTHER HALF
16 ASSET BASE WOULD BE WORTH?
17 A. WE DIDN'T IN A TOTAL SENSE, BUT WE DID HAVE ESTIMATES FROM
18 THE COMPANY ABOUT WHAT THE COSTS WOULD BE OF A PRINTING PLANT
19 IF WE NEEDED TO REPLACE ONE IF WE LOST IT AT THE END OF THE
20 JOA. AND THAT NUMBER, WHICH I WILL TELL YOU EVOLVED OVER TIME
21 AND I'M NOT SURE EVER SETTLED OUT AT A NUMBER THAT I WOULD TELL
22 YOU WAS A HUNDRED PERCENT, YOU KNOW, BOUGHT OFF ON, THE LAST
23 NUMBER PRIOR TO THIS WOULD HAVE BEEN 200 MILLION.
24 Q. YOU'VE MODELED TWO SCENARIOS HERE UNDER THE DISCOUNTED
25 CASH FLOW ANALYSIS; IS THAT RIGHT? 723
GREENTHAL - DIRECT / LINDSTROM
1 A. YES.
2 Q. THE FIRST SCENARIO YIELDS $540 MILLION?
3 A. CORRECT.
4 Q. WHAT WERE THE ASSUMPTIONS UNDERLYING THAT SCENARIO?
5 A. THE 540 MILLION-DOLLAR ASSUMPTIONS WERE THAT AT THE END OF
6 THE JOA, THE HEARST CORPORATION WOULD HAVE FOLDED THE EXAMINER
7 AND THE CHRONICLE WOULD HAVE BEEN THE ONLY REMAINING NEWSPAPER
8 IN SAN FRANCISCO UNDER -- OPERATING BETWEEN THOSE TWO
9 NEWSPAPERS.
10 Q. HOW LIKELY DID YOU VIEW THAT SCENARIO AS BEING?
11 A. WE VIEWED THAT AS THE LIKELY OUTCOME.
12 Q. THE LOWER --
13 A. AGAIN, WE'RE LOOKING AT THIS FROM A THIRD-PARTY
14 PERSPECTIVE SINCE WE WEREN'T EVALUATING THIS FROM HEARST'S
15 PERSPECTIVE.
16 Q. THE LOWER CASE, 489 MILLION, WHAT WERE THE ASSUMPTIONS
17 UNDERLYING THAT SCENARIO?
18 A. IN THAT SCENARIO, WHICH WE VIEWED AS OUR WORST CASE
19 SCENARIO, WHICH I THINK IS THE WAY IT'S LABELED HERE, WE
20 ASSUMED THAT AT THE END OF THE JOA THAT HEARST WOULD BEHAVE IN
21 A WAY -- A MANNER WHICH FROM OUR STANDPOINT WAS PURELY
22 IRRATIONAL FINANCIALLY. IT CONDUCTED A LIMITED NUMBER OF -- A
23 LIMITED NUMBER OF YEARS OF COMPETITION, THEN FOLD THEIR TENT
24 AND GO HOME.
25 Q. UNDER THIS SCENARIO, DID HEARST STAY IN THE MARKET AFTER 724
GREENTHAL - DIRECT / LINDSTROM
1 THE EXPIRATION OF THE JOA?
2 A. YES, THEY DID.
3 Q. FOR HOW LONG?
4 A. FOR THREE YEARS.
5 Q. THEN WHAT HAPPENED AFTER THE THREE YEARS?
6 A. THREE YEARS THEY BASICALLY WENT HOME. THEY CALLED IT
7 QUITS AND WENT HOME AFTER LOSING A LOT OF MONEY.
8 Q. NOW, IF I CAN ZOOM IN ON THIS, IN THE FOOTNOTE IN THIS
9 COLUMN YOU INDICATE, "WORST CASE IS A WAR" -- IT'S A NEWSPAPER
10 WAR; RIGHT?
11 A. YES.
12 Q. -- "IN 2006, 2007 AND 2008 WITH THE EXAMINER CLOSING AT
13 THE END OF 2008." DO YOU SEE THAT?
14 A. YES.
15 Q. DID YOU EVER MODEL A SCENARIO THAT HAD THE EXAMINER IN THE
16 MARKET PAST 2008?
17 A. WE NEVER DID EVER.
18 Q. DID YOU MAKE ANY ATTEMPT TO ESTIMATE WHAT AMOUNT OF MONEY
19 THE EXAMINER MIGHT LOSE IF IT WERE, IN FACT, TO ENGAGE IN THIS
20 WAR SCENARIO DURING THE YEARS 2006 THROUGH 2008?
21 A. YES, WE DID.
22 Q. WHAT DID YOU CONCLUDE?
23 A. WE CONCLUDED THAT OVER A PERIOD OF THREE YEARS IT WOULD
24 LOSE $160 MILLION, YOU KNOW, JUST ON A BASIC EBIDTA BASIS.
25 THAT'S EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND 725
GREENTHAL - DIRECT / LINDSTROM
1 AMORTIZATION.
2 Q. LET ME ASK YOU A QUESTION. THE SCENARIO, THE LOWER CASE
3 SCENARIO, 489 MILLION, IS PREMISED ON A WAR THAT YOU'VE TOLD US
4 YOU DIDN'T THINK WOULD HAPPEN; RIGHT?
5 A. CORRECT. YEAH.
6 Q. WHY DID YOU BOTHER TO MODEL THAT?
7 A. WE MODELED THAT BECAUSE OBVIOUSLY WE THOUGHT THAT IT HAD
8 SOME DEGREE OF UNCERTAINTY OVER THE LENGTH OF THE JOA; BUT
9 WHILE YOU COULD SIT AND SAY THE PURELY RATIONAL THING WAS
10 EVERYBODY GO THEIR SEPARATE WAYS AND THE EXAMINER GO OUT OF
11 BUSINESS, WE WANTED TO SEE WHAT THE WORST CASE WOULD LOOK LIKE.
12 AND, QUITE FRANKLY, WE DIDN'T SPEND A LOT OF TIME ON
13 IT AND YOU COULD SEE THAT THE VALUING DIFFERENTIATION IS NOT
14 HUGE FROM THE CHRONICLE SHAREHOLDER STANDPOINT. BUT WE DECIDED
15 THAT IT WAS THE PRUDENT THING TO DO WOULD BE TO LOOK AT, YOU
16 KNOW, HOW BAD IT WOULD BE IF SOMEBODY DECIDED TO ACT
17 IRRATIONALLY.
18 Q. AND WHAT DID YOU CONCLUDE THAT THE DIFFERENCE IN VALUATION
19 UNDER THIS DISCOUNTED CASH FLOW ANALYSIS WOULD BE BETWEEN
20 HEARST EXITING IMMEDIATELY UPON EXPIRATION OF THE JOA AND
21 WAGING THIS WAR FOR THREE YEARS?
22 A. APPROXIMATELY $50 MILLION.
23 Q. WHAT ACTION DID THE BOARD TAKE IN RESPONSE TO THE
24 PRESENTATION THAT YOU MADE ON AUGUST 6TH?
25 A. THEY DECIDED TO APPROVE THE TRANSACTION OF THE SALE OF THE 726
GREENTHAL - DIRECT / LINDSTROM
1 PAPER TO HEARST.
2 MR. LINDSTROM: THANK YOU, YOUR HONOR. I HAVE NO
3 FURTHER QUESTIONS.
4 THE COURT: VERY WELL. ANY OTHER DEFENDANTS WISH TO
5 TAKE THIS WITNESS ON DIRECT?
6 MR. HALLING: NO QUESTIONS, YOUR HONOR.
7 MR. HOCKETT: WE HAVE NO QUESTIONS, YOUR HONOR.
8 THE COURT: ALL RIGHT. WHY DON'T WE TAKE UNTIL FIVE
9 MINUTES AFTER THE HOUR, MR. ALIOTO, AND THEN YOU CAN BEGIN YOUR
10 CROSS-EXAMINATION.
11 MR. ALIOTO: THANK YOU, YOUR HONOR.
12 (RECESS TAKEN AT 9:50 A.M.)
13 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
14
15
16
17
18
19
20
21
22
23
24
25 727
GREENTHAL - CROSS / ALIOTO
1 (PROCEEDINGS RESUMED AT 10:10 A.M.)
2 THE COURT: VERY WELL. MR. ALIOTO, YOU MAY
3 CROSS-EXAMINE.
4 MR. ALIOTO: THANK YOU, YOUR HONOR.
5 CROSS-EXAMINATION
6 BY MR. ALIOTO:
7 Q. MAY IT PLEASE YOUR HONOR.
8 IT IS CORRECT, IS IT NOT, THAT THE DLJ WILL BE PAID
9 APPROXIMATELY $2.6 MILLION IF THE TRANSACTION HERE IS CLOSED?
10 A. WE HAVE BEEN PAID 20 PERCENT OF THAT, BUT, YES, THAT WOULD
11 BE -- THE BALANCE WILL BE DUE AT CLOSING.
12 Q. SO IF YOU HAVE BEEN PAID 20 PERCENT, THAT MEANS YOU HAVE
13 BEEN PAID ABOUT $500,000 FOR YOUR WORK SO FAR?
14 A. CORRECT.
15 Q. AND IF THIS TRANSACTION CLOSES, NAMELY, THE PURCHASE OF
16 THE CHRONICLE BY THE HEARST CORPORATION, THEN THE DLJ WILL BE
17 PAID AN ADDITIONAL $2.1 MILLION?
18 A. CORRECT.
19 Q. IS THAT RIGHT?
20 A. MORE OR LESS.
21 Q. AND IS THAT FOR ALL OF THE WORK THAT HAS BEEN DONE UP TO
22 THIS POINT?
23 A. THAT'S BEEN -- THAT'S FOR THE WORK RELATED TO THE SALE OF
24 THE CHRONICLE NEWSPAPER. IT DOESN'T RELATE TO THE REST OF THE
25 BUSINESSES. 728
GREENTHAL - CROSS / ALIOTO
1 Q. SO YOU HAVE -- SO YOU ARE BEING PAID FEES FOR OTHER WORK
2 ON BEHALF OF THE CHRONICLE, CPC, IN ADDITION TO THIS?
3 A. THAT'S RIGHT.
4 Q. SO THEN -- SO WE ARE CLEAR, THE 2.1, THEN, AND THE
5 500,000, THAT WAS JUST RELATED TO THE SALE OF THE CHRONICLE?
6 A. THE CHRONICLE AND THE GATE, YES.
7 Q. ALL RIGHT. NOW, YOU HAVE REFERRED TO THE COMPETITION OR
8 POTENTIAL COMPETITION OR ACTUAL COMPETITION BETWEEN HEARST AND
9 THE CHRONICLE AS "WAR"?
10 A. IF YOU ARE DESCRIBING THE MODELING THAT WE DID, PROJECTING
11 OUT, YES, IT WAS REFERRED TO AS "WAR."
12 Q. YES. BUT WHAT WAS REFERRED TO AS "WAR" WAS COMPETITION;
13 IS THAT RIGHT?
14 A. WHAT WAS REFERRED -- WHAT WAS REFERRED TO AS "WAR" WAS THE
15 TWO NEWSPAPERS BEING INDEPENDENT OF EACH OTHER AND COMPETING
16 WHERE THEY DON'T COMPETE CURRENTLY, THAT'S CORRECT.
17 Q. OKAY. SO THAT'S -- WE CALL THAT SOMETIMES "COMPETITION,"
18 DON'T WE?
19 A. SURE.
20 Q. OKAY. AND SO THE OPPOSITE OF THIS WAR OR COMPETITION
21 WOULD BE THE ELIMINATION OF COMPETITION AND SOME KIND OF PEACE?
22 A. THERE IS NO COMPETITION CURRENTLY SO IT'S NOT ELIMINATION
23 OF COMPETITION.
24 Q. WHEN YOU REFER TO "WAR," YOU ARE TALKING ABOUT AFTER THE
25 JOA, AREN'T YOU? 729
GREENTHAL - CROSS / ALIOTO
1 A. WHEN I REFERRED TO "WAR," I REFERRED TO AFTER THE JOA,
2 ASSUMING HEARST DOES SOMETHING WHICH WE VIEWED AS IRRATIONAL
3 STATE OF THE MARKET AND WENT INTO FULL-SCALE COMPETITION.
4 Q. MADAM, YOU REFERRED TO "WAR" AS CONDUCT AFTER THE JOA,
5 DIDN'T YOU?
6 A. I -- YOU ASKED A DIFFERENT QUESTION BEFORE.
7 Q. WELL, LOOK. THE LAST -- LET ME GO TO THE ELMO BECAUSE
8 THIS WAS THE LAST DOCUMENT THAT YOU HAD. AND THIS IS THE -- I
9 WILL ZOOM THIS DOCUMENT. THIS IS THE LAST DOCUMENT YOU WERE
10 TALKING ABOUT OR TESTIFYING ABOUT ON THE STAND WITH REGARD TO
11 CERTAIN VALUATIONS.
12 A. YES.
13 Q. THEN IN THE FOOTNOTE YOU REFER TO "WORST CASE IS A WAR IN
14 2006, '7, '8," SO FORTH, CORRECT?
15 A. YES.
16 Q. THAT'S AFTER THE JOA, ISN'T IT?
17 A. THAT'S AFTER THE JOA IN THAT SCENARIO.
18 Q. OKAY. AND IN THAT SCENARIO WHEN YOU REFER TO "WAR," YOU
19 ARE TALKING ABOUT COMPETITION; ISN'T THAT RIGHT? HOWEVER
20 IRRATIONAL YOU MAY THINK IT IS, THAT'S WHAT YOU ARE TALKING
21 ABOUT.
22 A. THAT'S WHAT I SAID BEFORE.
23 Q. OKAY. AND SO WHAT YOU WERE ADVOCATING WAS NOT COMPETITION
24 BUT THE OPPOSITE OF THAT, WHICH WOULD BE SOME KIND OF PEACE,
25 WHICH WOULD BE THE ELIMINATION OF COMPETITION; IS THAT RIGHT? 730
GREENTHAL - CROSS / ALIOTO
1 A. I WASN'T ADVOCATING ANYTHING. IT WAS OUR OPINION THAT
2 THAT WAS NOT A RATIONAL OUTCOME AND, THEREFORE, OUR BELIEF THAT
3 THERE WOULD NOT BE THE EXISTENCE OF EXAMINER AND THE WAR
4 SCENARIO.
5 Q. IT IS, IN FACT, YOUR BELIEF, IS IT NOT, FROM YOUR
6 EXPERIENCE IN THE INDUSTRY, THAT IN A SITUATION WHERE
7 COMPETITORS GO TO WAR, THERE IS A SIGNIFICANT PRICE CUTTING IN
8 THE MARKETPLACE?
9 A. THERE CAN RESULT IN PRICE CUTTING, YES.
10 Q. AND THAT WOULD INCLUDE, WOULD IT NOT, THAT THE
11 BENEFICIARIES OF THAT WOULD BE ADVERTISERS AND CONSUMERS?
12 A. IN THAT CASE WHERE THERE IS PRICE CUTTING BOTH ON
13 ADVERTISING AND CIRCULATION, YES, THOSE WOULD BE THE
14 BENEFICIARIES.
15 Q. AND THAT'S BECAUSE OF THE -- TYPICALLY OF LOWERING
16 ADVERTISING RATES, IS IT NOT?
17 A. THAT'S BECAUSE IN CERTAIN CIRCUMSTANCES YOU HAVE LOWERING
18 OF ADVERTISING RATES.
19 Q. AND ALSO THERE ARE OTHER DIFFERENT WAYS IN WHICH THERE CAN
20 BE OTHER FORMS OF COMPETITION AGAIN TO THE BENEFIT OF
21 ADVERTISERS AND CONSUMERS; IS THAT RIGHT?
22 A. IT TAKES SHAPE IN A LOT OF DIFFERENT WAYS, BUT THAT CAN BE
23 ONE OUTCOME.
24 Q. NOW, WHEN THERE IS THIS WAR OR COMPETITION BETWEEN THE --
25 BETWEEN COMPETITORS, ONE OF THE PROBLEMS WITH THAT FROM THE 731
GREENTHAL - CROSS / ALIOTO
1 BUSINESS, FROM THE CHRONICLE CORPORATION'S, STANDPOINT IS THAT
2 THEIR PROFITS GET LOWERED; IS THAT RIGHT?
3 A. CAN YOU REPEAT THE QUESTION?
4 Q. YOU UNDERSTOOD, DID YOU NOT, WHEN YOU WERE ATTEMPTING
5 TO -- OR AT LEAST YOU BELIEVED THAT -- WHEN YOU WERE ATTEMPTING
6 TO SELL THE CHRONICLE, YOU BELIEVED THAT THE EXAMINER WOULD
7 SHUT DOWN AFTER 2005?
8 A. WE BELIEVED THAT WAS THE LIKELY SCENARIO, YES.
9 Q. AND, I TAKE IT, THAT WHEN YOU HAD THESE DISCUSSIONS WITH
10 PERSONS OTHER THAN HEARST, YOU TOLD THEM THAT?
11 A. WE -- WE HAD DISCUSSIONS WITH PEOPLE ABOUT THE JOA. THESE
12 ARE NEWSPAPER PEOPLE WE WERE TALKING TO. THEY HAD THEIR OWN
13 POINTS OF VIEW. IN CERTAIN CIRCUMSTANCES THEY EXPRESSED VIEWS
14 TO US, WHICH I HAVE TESTIFIED ABOUT.
15 Q. QUESTION AGAIN, MADAM, IS: AND WHEN YOU HAD THESE
16 DISCUSSIONS WITH THESE OTHER PEOPLE, YOU TOLD THEM YOUR VIEW
17 THAT YOU THOUGHT THAT THE EXAMINER WAS GOING TO SHUT DOWN IN
18 2005; IS THAT RIGHT?
19 A. WE TOLD THEM THAT IN OUR VIEW THAT THE EXAMINER WAS A
20 DYING NEWSPAPER, AND THE LIKELY SCENARIO WAS THEY WERE GOING TO
21 SHUT DOWN, AND WE GOT NO DISAGREEMENT FROM ANYONE.
22 Q. OKAY. AND SO THEN YOU UNDERSTOOD, AT LEAST IN YOUR OWN
23 MIND, THAT WHAT -- AT LEAST AS FAR AS SAN FRANCISCO WAS
24 CONCERNED, THAT WHAT YOU WERE OFFERING WAS A PAPER THAT WOULD
25 HAVE A MONOPOLY, A DAILY NEWSPAPER, THAT WOULD HAVE A MONOPOLY 732
GREENTHAL - CROSS / ALIOTO
1 IN SAN FRANCISCO; IS THAT RIGHT?
2 A. IT'S A LONG QUESTION. BUT WHAT WE WERE OFFERING WAS A
3 NEWSPAPER WHICH WAS SUBJECT TO A JOA, WHICH WAS GOING TO
4 CONTINUE UNTIL THE END OF THE YEAR 2005 IN WHICH THE LIKELY
5 SCENARIO WAS THAT ONE NEWSPAPER OF THE TWO WOULD EXIST. I
6 WOULD NOT CALL IT A "MONOPOLY," AS YOU DESCRIBED IT.
7 Q. WELL, THOSE WERE THE RESULTS OF THE STUDIES THAT YOU SENT
8 OUT TO ALL OF THESE PEOPLE IN THE BEGINNING. DIDN'T YOU SHOW
9 THEM THAT THE TWO NEWSPAPERS HAD OVER 97 PERCENT OF SAN
10 FRANCISCO?
11 A. WE SHOWED THEM THAT IF YOU WANT TO DEFINE THE MARKET IN A
12 VERY NARROW SENSE, WHICH WAS NOT THE WAY WE DEFINED IT, THEY
13 HAD A HIGH PERCENTAGE OF CERTAIN MARKETS. BUT IF YOU LOOKED AT
14 THE BROADER SAN FRANCISCO MARKET, THERE WAS SIGNIFICANT LOSS OF
15 COMPETITION. IN FACT, WE SHOWED THEM THAT OTHER COMPETITORS
16 HAD PICKED UP CIRCULATION WHERE THEY HAD LOST CIRCULATION.
17 Q. AGAIN, MY QUESTION IS: WHEN YOU GAVE THEM THE BROCHURE,
18 YOU WERE SHOWING THEM, WERE YOU NOT, THAT IF -- THAT IF THE TWO
19 PAPERS -- THAT THE TWO PAPERS HAD 97 PERCENT OF THE SAN
20 FRANCISCO MARKET FOR DAILY NEWSPAPERS, RIGHT?
21 A. A CERTAIN PORTION OF THE SAN FRANCISCO MARKET. I MEAN, I
22 DON'T KNOW HOW YOU ARE DEFINING "SAN FRANCISCO," BECAUSE I
23 BELIEVE THE SAN FRANCISCO MARKET IN TOTALITY IS BROADER. WE
24 CERTAINLY SHOWED THEM WHAT CIRCULATION WAS IN DIFFERENT PARTS
25 OF THAT MARKET. I AM NOT SURE WHAT DEFINITION YOU ARE USING. 733
GREENTHAL - CROSS / ALIOTO
1 MR. ALIOTO: MAY I APPROACH THE WITNESS, YOUR HONOR?
2 THE COURT: VERY WELL.
3 BY MR. ALIOTO:
4 Q. LET ME SHOW YOU WHAT IS PLAINTIFF'S EXHIBIT NUMBER 6 IN
5 EVIDENCE.
6 PLAINTIFF'S EXHIBIT NUMBER 6 IN EVIDENCE IS ENTITLED
7 "SAN FRANCISCO CHRONICLE, THE GATE AND OTHER NEWSPAPERS."
8 IT'S CONFIDENTIAL INFORMATION, MEMORANDUM, JULY 1999,
9 DONALDSON, LUFKIN & JENRETTE.
10 THIS IS -- OH, YOU HAVE A COPY YOURSELF?
11 A. YES. I HAVE A COPY ALREADY.
12 Q. ALL RIGHT. THIS IS, IN FACT, THE BROCHURE THAT WAS
13 PREPARED BY DONALDSON, LUFKIN & JENRETTE AND SENT TO THE
14 POTENTIAL PURCHASERS OF THE CHRONICLE; IS THAT CORRECT?
15 A. CORRECT.
16 Q. I WOULD LIKE TO DIRECT YOUR ATTENTION -- IF YOU WILL GO TO
17 PAGE 45 OF THAT DOCUMENT.
18 A. YES. I DO NOT HAVE A VERY CLEAR COPY BUT I WILL TRY TO
19 FOLLOW WITH YOU.
20 Q. I'M SORRY. I CAN'T HEAR YOU. ONE MOMENT, PLEASE.
21 OKAY. ON PAGE 45 THAT IS TO SHOW THE DAILY
22 NEWSPAPER CIRCULATION IN SAN FRANCISCO, CORRECT?
23 A. SAN FRANCISCO DMA.
24 Q. SAN FRANCISCO DMA, CORRECT?
25 A. YES. 734
GREENTHAL - CROSS / ALIOTO
1 Q. OKAY. AND THERE ARE A NUMBER OF COUNTIES LISTED, ARE
2 THERE NOT?
3 A. YES, THERE ARE.
4 Q. AND THE FOURTH ONE DOWN IS SAN FRANCISCO, IS IT NOT?
5 A. YES, IT IS.
6 Q. AND SAN FRANCISCO SHOWS THAT THE CHRONICLE AND THE
7 EXAMINER HAVE APPROXIMATELY -- YOU CAN TELL FROM THOSE FIGURES,
8 CAN YOU NOT? -- 97 PERCENT OF THE MARKET?
9 A. IT'S SHOWN IN THE CONTEXT OF ALL OF THESE MARKETS, NOT
10 SIMPLY IN THAT MARKET, WHAT ITS CIRCULATION HAS BEEN. THAT
11 PARTICULAR SUBSEGMENT OF THE SAN FRANCISCO DMA, YOU ARE
12 CORRECT.
13 Q. OKAY. I AM GOING TO TRY ONE MORE TIME.
14 IT SHOWS IN SAN FRANCISCO THAT IT'S 97 PERCENT OF
15 THE MARKET, DOES IT NOT?
16 A. BUT IT'S IN THE --
17 Q. DOES IT OR DOESN'T IT?
18 A. IT SHOWS IN THE SAN FRANCISCO COUNTY, WHICH IS PART OF THE
19 SAN FRANCISCO DMA, THAT IT IS THAT PERCENTAGE.
20 Q. DOES IT SHOW IN SAN FRANCISCO?
21 A. WHICH SAN FRANCISCO, THE DMA OR THE SUBSEGMENT OF THE
22 COUNTY?
23 Q. OKAY. WE WILL HAVE THE DEFINITE -- ALL RIGHT. IF YOU
24 WILL GO TO THE FOURTH COLUMN. DO YOU SEE WHERE IT SAYS "SAN
25 FRANCISCO"? 735
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q. OKAY. THAT'S SUPPOSED TO BE SAN FRANCISCO COUNTY, ISN'T
3 IT?
4 A. THE FIRST COLUMN, YES.
5 Q. YES.
6 A. SO IT'S --
7 Q. SO IN SAN FRANCISCO --
8 A. YES.
9 Q. -- COUNTY IT SHOWS THAT THOSE TWO NEWSPAPERS, DAILY
10 NEWSPAPERS, WOULD HAVE 97 PERCENT OF THE MARKET, CORRECT?
11 A. WITHOUT CALCULATING, THAT LOOKS CORRECT.
12 Q. THANK YOU.
13 NOW, YOU IN FACT MADE AN ANALYSIS ABOUT THE WAR, AND
14 ONE OF THE THINGS THAT YOU SAID ABOUT THE WAR WAS, WAS IT NOT,
15 THAT IT WOULD PROBABLY RESULT IN A DECREASE IN ADVERTISING
16 RATES?
17 A. OUR SCENARIO THAT WE MODELED REFLECTED A DECREASE IN
18 ADVERTISING RATES TRYING TO SHOW WHAT WE THOUGHT WAS THE
19 PESSIMISTIC OUTCOME RELATED TO WAR.
20 Q. YES. YOU SAY "PESSIMISTIC" WHEN YOU ARE TALKING ABOUT
21 COMPETITION. YOU CALL "COMPETITION" WAR AND PESSIMISTIC.
22 THAT'S THE WORST CASE COMPETITION; IS THAT IT?
23 A. ACTUALLY, I THINK THOSE WERE YOUR WORDS. MY WORDS WERE WE
24 MODELED A VERY PESSIMISTIC SCENARIO, WHICH MEANS WE USED VERY
25 CONSERVATIVE ASSUMPTIONS IN TERMS OF MODELING TO SHOW THE WORST 736
GREENTHAL - CROSS / ALIOTO
1 CASE OUTCOME FROM THE FINANCIAL STANDPOINT.
2 Q. OKAY. WHEN YOU SAY "THE WORST CASE OUTCOME FROM A
3 FINANCIAL STANDPOINT," YOU ARE TALKING ABOUT FROM THE
4 PERSPECTIVE OF THE COMPANIES. YOU ARE NOT TALKING ABOUT FROM
5 THE PERSPECTIVE OF ADVERTISERS OR CONSUMERS, ARE YOU?
6 A. WE WEREN'T MODELING IT FOR THE CONSUMERS OR ADVERTISING
7 IT -- ADVERTISERS.
8 Q. AND IN MAKING YOUR SO-CALLED "WORST CASE," THE MODEL
9 CALLED FOR, DID IT NOT, THAT THE RATES FOR ADVERTISING AND
10 CIRCULATION WOULD BE DECREASED; ISN'T THAT TRUE?
11 A. THAT'S TRUE.
12 Q. AND IN THE ABSENCE OF THAT WAR, IF THERE WERE PEACE AND
13 JUST ONE NEWSPAPER, YOU MODELED IT THAT THE -- THAT THE RESULT
14 WOULD BE AN INCREASE IN THE ADVERTISING RATE, DIDN'T YOU?
15 A. WE MODELED THAT THERE WOULD BE AN INCREASE IN ADVERTISING
16 RATE BECAUSE THERE WOULD BE MORE CIRCULATION OF THE NEWSPAPER
17 AND, THEREFORE, ON A PER-CIRCULATION BASIS EFFECTIVELY YOU
18 WOULD BE IN THE SAME POSITION.
19 Q. YES. SO THE ANSWER IS, I TAKE IT, TO MY QUESTION IS, YES,
20 YOUR MODEL DID SHOW THAT WITH THE ONE NEWSPAPER THERE WOULD BE
21 AN INCREASE IN THE RATES OF ABOUT 20 PERCENT, CORRECT?
22 A. REFLECTIVE OF THE GAIN IN CIRCULATION, CORRECT.
23 Q. OKAY. SO THAT IN THE WAR SITUATION THE CONSUMERS AND THE
24 ADVERTISERS BENEFIT AND IN THE PEACE SITUATION THE SO-CALLED
25 COMPETITORS BENEFIT -- OR WHOEVER IS LEFT. RIGHT? 737
GREENTHAL - CROSS / ALIOTO
1 A. WAIT. I -- I AM NOT FOLLOWING -- GO THROUGH IT ONE MORE
2 TIME.
3 IN A WAR SCENARIO ADVERTISERS AND CONSUMERS WOULD
4 PAY LOWER PRICES. THERE WOULD BE LESS PROFIT.
5 Q. THEREFORE, THEY BENEFIT -- THEY BENEFIT, RIGHT?
6 A. THEY WOULD BENEFIT.
7 Q. OKAY. THAT'S THE WORST CASE?
8 A. RIGHT.
9 Q. OKAY.
10 A. THAT'S THE WORST CASE FROM A FINANCIAL STANDPOINT.
11 Q. WELL, WHEN YOU SAY "FINANCIAL STANDPOINT," YOU ARE NOT
12 TALKING ABOUT THE FINANCE OF CONSUMERS OR SUBSCRIBERS, ARE YOU?
13 A. WELL, I ALREADY TOLD YOU I AM NOT AND, QUITE FRANKLY, WE
14 WERE HIRED TO LOOK AT THE CASE FROM THE CHRONICLE'S STANDPOINT.
15 Q. OKAY. SO, IN OTHER WORDS, WHAT YOU ARE SAYING IS IT'S THE
16 BEST INTERESTS FROM THE CHRONICLE FROM THE CHRONICLE'S
17 STANDPOINT, CORRECT?
18 A. I -- YOU HAVE TO ASK A FULL QUESTION.
19 Q. I HAVE TO DO WHAT?
20 A. I DON'T UNDERSTAND YOUR QUESTION AS YOU'VE ASKED IT. IF
21 YOU COULD ASK IT A COMPLETE QUESTION, I WOULD BE HAPPY TO
22 ANSWER IT.
23 Q. IN YOUR STUDY YOU WERE SHOWING THAT FROM 1994 THROUGH
24 191998 -- AND THIS STUDY IS AS OF JULY OF 1999 -- YOU WERE
25 SHOWING THAT THERE WAS CONTINUAL INCREASES IN THE REVENUES AND 738
GREENTHAL - CROSS / ALIOTO
1 THE NET EXCESS FOR THE TWO NEWSPAPERS UNDER THE JOA, CORRECT?
2 A. I DON'T RECALL WHETHER IT WAS CONTINUAL. THERE WAS
3 PROGRESS ON BALANCE. I DON'T KNOW EACH YEAR.
4 Q. ALL RIGHT. WELL, WOULD YOU PLEASE TAKE A LOOK AT -- LET'S
5 BEGIN ON PAGE 48 AND THEN AGAIN -- THIS IS EXHIBIT 6 WHICH WAS
6 SENT TO ALL OF THE PERCENT TIFF PURCHASERS, AS I UNDERSTAND IT,
7 OF THE -- POTENTIAL PURCHASERS OF THE CHRONICLE.
8 A. UH-HUH.
9 Q. AND IT WOULD BE ON PAGE 48.
10 A. YES.
11 Q. AND YOU WILL NOTE, FOR EXAMPLE, FIRST IS THE SUMMARY. I
12 WANT TO DIRECT YOUR ATTENTION TO THE FIRST PAGE OF THAT.
13 A. YEAH.
14 Q. AND UNDER THE SUMMARY RIGHT AT THE VERY TOP IT STATES IN
15 THE VERY FIRST SENTENCE, QUOTE:
16 "FROM 1994 TO 1998, THE SFNA'S REVENUES AND
17 NET EXCESS HAVE GROWN 26.2 PERCENT AND
18 80.3 PERCENT RESPECTIVELY."
19 DO YOU SEE THAT?
20 A. YES.
21 Q. SO THAT MEANS THAT THE NET EXCESS -- YOU UNDERSTOOD THE
22 NECESSARY EXCESS TO BE THAT PORTION WHICH WOULD THEN BE DIVIDED
23 BETWEEN THE TWO PAPERS?
24 A. YES.
25 Q. AND THAT THAT -- DURING THAT TIME PERIOD, 1994 TO 1998, 739
GREENTHAL - CROSS / ALIOTO
1 WHAT THE TWO PAPERS WERE DIVIDING IN THOSE PERIODS HAD
2 INCREASED 80 PERCENT; IS THAT RIGHT?
3 A. THAT'S WHAT THAT SAYS. THAT'S NOT WHAT YOU ASKED ME
4 BEFORE.
5 Q. THIS IS -- THIS IS THE DOCUMENT YOU SENT AROUND, ISN'T IT?
6 A. YES.
7 Q. THIS IS THE -- IT HAS DONALDSON AND LUFKIN & JENRETTE,
8 DOESN'T IT?
9 A. YES, IT DOES.
10 Q. THIS IS WHAT YOU DID, ISN'T IT?
11 A. YES. AS I SAID, IT'S NOT THE QUESTION YOU ASKED ME
12 BEFORE. YOU ASKED ME WHETHER IT GREW IN EACH AND EVERY YEAR
13 AND I SAID I DIDN'T KNOW IF IT GREW IN EACH AND EVERY YEAR BUT
14 THIS IS THE COMPOUNDS BETWEEN THE TWO END POINTS AND I BELIEVE
15 IF YOU LOOK AT THE BACK YOU ARE GOING TO FIND THAT IT DIDN'T
16 NECESSARILY GROW IN EACH AND EVERY YEAR.
17 Q. LET'S TAKE A LOOK AT EACH ONE, THEN.
18 FIRST ON 48, IF YOU WILL -- ON PAGE 48?
19 A. I AM LOOKING AT PAGE 52.
20 Q. WE WILL GO ONE YEAR AT A TIME, OKAY?
21 A. IT'S ON PAGE 52.
22 Q. IF YOU LOOK AT FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR
23 19,970TH OWE THAT'S THE FIRST ONE. DO YOU SEE THAT ON PAGE 48?
24 A. YES.
25 Q. IT SAYS, QUOTE: 740
GREENTHAL - CROSS / ALIOTO
1 "REVENUES INCREASED 17.4 MILLION -- FORGET
2 THE PERCENTAGE -- IN 1998 OVER '97. ADVERTISING
3 REVENUES INCREASED 18 MILLION."
4 A. YES.
5 Q. "NATIONAL ADVERTISING REVENUES INCREASED 6 MILLION?
6 A. RIGHT.
7 Q. AND THEN, IN ADDITION, CLASSIFIED ADVERTISING REVENUES
8 INCREASED 6 MILLION.
9 DO YOU SEE THAT?
10 A. YES.
11 Q. OKAY. GO TO THE NEXT PAGE, FISCAL YEAR 1996 COMPARED WITH
12 FISCAL YEAR 1995. AGAIN, REVENUES INCREASED 7 MILLION. DO YOU
13 SEE THAT?
14 A. UH-HUH.
15 Q. ADVERTISING REVENUES INCREASED 4.7 MILLION. DO YOU SEE
16 THAT?
17 A. ADVERTISING INCREASED 4.7? WHERE -- WHICH PAGE ARE YOU
18 ON?
19 Q. PAGE 49 IN THE MIDDLE OF THE PAGE UNDER THE HEADNOTE --
20 A. 49? OKAY.
21 Q. THIS IS THE PREVIOUS YEAR, REVENUES INCREASED 7 MILLION?
22 A. YEAH.
23 Q. ADVERTISING REVENUES INCREASED 4.7 MILLION?
24 A. YEAH.
25 Q. YOU WILL GO DOWN, IT SAYS CLASSIFIED ADVERTISING IS 741
GREENTHAL - CROSS / ALIOTO
1 INCREASED 12 MILLION; NATIONAL ADVERTISING INCREASED 5 MILLION.
2 DO YOU SEE THOSE?
3 A. YES.
4 Q. OKAY. THAT'S FROM AT LEAST 1995, '96, '97 AND '98. THOSE
5 ARE THE FOUR YEARS, CORRECT?
6 A. IN '9 -- AGAIN, YOU ASKED ME ABOUT REVENUE AND NET EXCESS.
7 ON PAGE 52 YOU CAN SEE THE SUMMARY OF THESE NUMBERS WHICH SHOW
8 BETWEEN '97 AND '98, IN FACT, NET EXCESS DECLINED -- NET EXCESS
9 DECLINED. THAT'S ALL I WAS RESPONDING TO.
10 OVER THE FIVE YEARS THERE WAS AN INCREASE,
11 ABSOLUTELY, NOT EACH YEAR, THOUGH.
12 Q. YES. AND ONE OF THE REASONS FOR -- TO SHOW SOME PART OF
13 THE SO-CALLED "NET EXCESS DECLINE" WAS THAT CHRONICLE'S
14 50 PERCENT SHARE OF SFNA'S EXPENSES IS MORE THAN HALF THE
15 AGENCY EXPENSES IN CERTAIN YEARS DUE TO CHRONICLE'S ADDITIONAL
16 RESERVES FOR WORKERS' COMPENSATION AND BAD DEBT, CORRECT?
17 A. IF THAT'S -- WHERE ARE YOU READING FROM?
18 Q. THAT'S ON THE SAME PAGE YOU'RE READING -- YOU'RE LOOKING
19 AT, PAGE 52.
20 A. ALL RIGHT.
21 Q. OKAY. SO THE POINT IS IS WHAT YOUR ANALYSIS AND WHAT YOU
22 UNDERSTOOD AT LEAST AS OF THIS TIME WHEN YOU PREPARED THIS
23 DOCUMENT AND SENT IT OUT TO THESE PEOPLE IS THAT THE NET EXCESS
24 THAT REMAINED INCREASED OVER 80 PERCENT FROM 1994 AND THAT THE
25 REVENUES INCREASED SOME 26 PERCENT OVER THAT TIME PERIOD, 742
GREENTHAL - CROSS / ALIOTO
1 CORRECT?
2 A. THAT'S CORRECT, YES.
3 Q. OKAY. THAT MEANS THAT IF THIS JOA CONTINUED, IT'S ON
4 AN -- IF THIS JOA CONTINUED, IT WAS CLEAR, AT LEAST TO YOU, WAS
5 IT NOT, THAT THE EXAMINER WOULD MAKE MONEY AND THE CHRONICLE
6 WOULD MAKE MONEY, CORRECT?
7 A. WITH RESPECT TO THE AMOUNT THAT THEY WERE SPENDING ON
8 EDITORIAL IN ITS CURRENT FORM? I MEAN, YOU ARE TALKING ABOUT
9 EXCESS, WHICH YOU KNOW IS PREEDITORIAL COSTS. AND UNDER THE
10 CURRENT FORM THAT THEY WERE SPENDING MONEY AND THE CAPITAL
11 EXPENDITURES THEY WERE MAKING -- THEY WERE BOTH MAKING FREE
12 CASH FLOW POSITIVE.
13 Q. OKAY. FREE CASH FLOW POSITIVE. IS THAT WHAT YOU ARE
14 CALLING IT?
15 A. YES, WHICH IS THE RIGHT FINANCIAL MEASUREMENT.
16 Q. AND THIS FREE CASH FLOW POSITIVE, THAT WAS GOING TO EXIST,
17 WAS IT NOT, YOUR UNDERSTANDING -- IT CERTAINLY LOOKED LIKE IT
18 WAS DEFINITELY GOING TO EXIST -- FOR THE LIFE OF THE JOA?
19 A. IT LOOKED BASED ON THE PROJECTIONS THAT -- OR BASED ON THE
20 HISTORICAL TRENDS THAT THAT WAS GOING TO BE THE CASE.
21 Q. AND THE HISTORICAL TRENDS SHOWED THAT, AS A MATTER OF
22 FACT, THEY WERE GOING TO PROBABLY BE DOING BETTER?
23 A. NO. THE HISTORICAL TRENDS WERE JUST THAT. THEY WERE
24 HISTORICAL TRENDS. THERE WAS A LOT OF OTHER STUFF THAT'S GOING
25 ON IN THE NEWSPAPER BUSINESS AND IN SAN FRANCISCO IN 743
GREENTHAL - CROSS / ALIOTO
1 PARTICULAR, AND SO TO THE EXTENT THAT THE HISTORICAL TRENDS
2 CONTINUED -- WHICH IS NOT NECESSARILY GUARANTEED, OBVIOUSLY --
3 Q. NO.
4 A. -- THEY CLEARLY WOULD HAVE MADE MONEY.
5 TO THE EXTENT THERE WAS FURTHER EROSION OF THEIR
6 CIRCULATION BASE AND INCURSIONS BY COMPETITIVE THREATS, IT MAY
7 HAVE BEEN DIFFERENT. IT MAY HAVE BEEN BETTER. IT MAY HAVE
8 BEEN WORSE. THAT'S ALL I SAID.
9 Q. OKAY. BUT IT WAS YOUR UNDERSTANDING, CORRECT, THAT
10 NEITHER OF THESE PAPERS -- YOU FELT THAT FROM THESE FIGURES
11 THAT BOTH OF THESE PAPERS WOULD BE HAVING A POSITIVE CASH FLOW
12 FOR THE REMAINDER OF THE JOA?
13 A. UNDER OUR PROJECTIONS THEY HAD POSITIVE CASH FLOW.
14 Q. BOTH OF THEM?
15 A. YES.
16 Q. ALL RIGHT. I WANT TO GO TO YOUR -- THIS IS EXHIBIT NUMBER
17 5.
18 A. DO I HAVE THIS? I DON'T THINK I DO.
19 Q. I WILL SHOW YOU EXHIBIT NUMBER 5.
20 A. OKAY.
21 MR. ALIOTO: MAY I APPROACH THE WITNESS, YOUR HONOR?
22 THE COURT: YES, YOU MAY.
23 BY MR. ALIOTO:
24 Q. THIS IS EXHIBIT NUMBER 5. EXHIBIT NUMBER 5 IS ENTITLED
25 "PRESENTATION REGARDING PROJECT GOLDEN, MAY 4, 1999." 744
GREENTHAL - CROSS / ALIOTO
1 AND THIS WAS PREPARED BY DLJ, WAS IT NOT?
2 A. YES, IT WAS.
3 Q. AND PREPARED UNDER YOUR DIRECTION; IS THAT TRUE?
4 A. CORRECT.
5 Q. BY THE WAY, DID YOU CONSIDER THE PERSONS THAT YOU EMPLOYED
6 TO MAKE THIS DOCUMENT AND PREPARE THIS DOCUMENT -- LET ME BACK
7 UP.
8 THE DOCUMENT WAS PREPARED FOR THE BENEFIT OF THE
9 BOARD OF DIRECTORS OF THE CHRONICLE; IS THAT RIGHT?
10 A. YES.
11 Q. DID YOU BELIEVE THAT THE PEOPLE -- YOURSELF AND THE PEOPLE
12 THAT YOU EMPLOYED TO GATHER THAT INFORMATION AND MAKE THIS
13 DOCUMENT -- DID YOU BELIEVE THEM TO BE COMPETENT?
14 A. YES, I DID AND I DO.
15 Q. OKAY. AND DID YOU GET A -- MUCH OF YOUR INFORMATION FROM
16 THE CHRONICLE ITSELF?
17 A. MUCH OF WHAT, OF THE INFORMATION IN HERE?
18 Q. YES.
19 A. THIS COMES FROM A VARIETY OF DIFFERENT SOURCES. SOME OF
20 IT WOULD HAVE COME FROM THE CHRONICLE.
21 Q. OKAY. ALL RIGHT.
22 IS THERE -- IF YOU WILL NOW GO TO PAGE 26 OF THE
23 SUPPLEMENT -- LET'S SEE. FIRST THERE IS THE MAY 4 PROJECT
24 GOLDEN AND THEN THERE IS A SUPPLEMENT. SO YOU MAY -- DON'T GET
25 CONFUSED. 745
GREENTHAL - CROSS / ALIOTO
1 A. OKAY.
2 Q. THE SUPPLEMENT IS THE SECOND ONE.
3 A. I ONLY HAVE ONE PAGE 26. IS THAT WHAT YOU ARE REFERRING
4 TO?
5 Q. NO, THERE IS ONE AFTER.
6 A. THE FIRST?
7 Q. THE SECOND ONE.
8 A. OKAY.
9 Q. IN THE SUPPLEMENT?
10 A. OKAY. I'VE GOT IT.
11 Q. OKAY. NOW, THIS AGAIN IS AN ANALYSIS. THIS IS THE
12 SO-CALLED -- IT'S ENTITLED, QUOTE, "JOA OPERATING SCENARIOS."
13 AND IT STATES, QUOTE:
14 "IF THE JOA IS UNRESOLVED, HEARST COULD
15 LEAVE THE MARKET AFTER 2005, RESULTING IN ONE
16 SURVIVING NEWSPAPER, THE CHRONICLE, OR STAY IN
17 THE MARKET AFTER 2005, RESULTING IN WAR."
18 THAT'S THE HEADNOTE, CORRECT?
19 A. CORRECT.
20 Q. YOU SEE THAT. ALL RIGHT.
21 NOW, THE FIRST THING -- AND THEN ON THE LEFT-HAND
22 COLUMN -- OKAY. THESE ARE IN THREE COLUMNS. AND THE -- AND
23 THE FIRST COLUMN ARE THE DIFFERENT PROFIT -- DESCRIBED AS THE
24 "MAJOR PROFIT AND LOSS COMPONENTS." AND THEY START WITH
25 "CIRCULATION"; THEN THEY HAVE "CIRCULATION PRICING"; THEN THEY 746
GREENTHAL - CROSS / ALIOTO
1 HAVE "AD REVENUE"; THEN THEY HAVE "PRODUCTION AND CIRCULATION";
2 THEY HAVE, "EDITORIAL, "CAPITAL EXPENDITURES." AND THEN THE
3 "LENGTH OF COMPETITION."
4 AND THEN THE SECOND COLUMN IS THE "JOA RESOLUTION OR
5 HEARST WALKS IN 2006."
6 NOW, WHEN IT STATES "HEARST WALKS," I TAKE IT, IT
7 MEANS IT LEAVES THE MARKET?
8 A. YES.
9 Q. OKAY. AND I THINK YOU REFERRED TO THAT IN THE DIRECT
10 EXAMINATION AS FOLDING ONE'S TENT?
11 A. I REFERRED TO IT A NUMBER OF DIFFERENT WAYS. I MAY HAVE
12 SAID THAT.
13 Q. OKAY. BUT YOU DON'T REFER TO IT AS THE ELIMINATION OF
14 COMPETITION. THAT'S ONE EXPRESSION YOU DON'T USE IN THESE
15 DOCUMENTS FOR THAT, ISN'T IT?
16 A. THERE IS NO CURRENT COMPETITION.
17 Q. THIS IS 2006 WALKING?
18 A. YES.
19 Q. RIGHT?
20 A. YES. THERE HAS NOT BEEN A COMPETITION BETWEEN THESE TWO
21 NEWSPAPERS.
22 Q. AND IN 2005 IS WHEN THE JOA IS OVER, CORRECT?
23 A. THE END OF 2005.
24 Q. SO AT THE END OF 2005, THE SCENARIO IS HEARST WALKS OR
25 FOLDS ITS TENT, CORRECT? 747
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q. YOU DO NOT REFER TO THAT AS COMPETITION BEING ELIMINATED,
3 CORRECT?
4 A. BUT THE ELIMINATION OF COMPETITION WOULD SUGGEST YOU
5 ALREADY HAVE COMPETITION, WHICH YOU DON'T HAVE.
6 Q. OKAY. SO YOU ONLY HAVE WAR. THERE IS NO PEACE. IS THAT
7 IT?
8 A. WAIT.
9 Q. IS THAT IT?
10 A. THAT'S . . .
11 Q. ALL RIGHT. THIS THIRD COLUMN IS "NO RESOLUTION -- WAR."
12 DO YOU SEE THAT?
13 A. YES.
14 Q. OKAY. BY THE WAY, IN THE JOA -- YOU SAID YOU READ IT.
15 AND IN THE JOA, OF COURSE, THE CHRONICLE HAS THE RIGHT TO FIX
16 ITS OWN RATES FOR ADVERTISING AND CIRCULATION, CORRECT?
17 A. I DON'T RECALL.
18 Q. WELL, THAT WOULD BE IMPORTANT TO KNOW WHETHER THERE IS
19 COMPETITION, ISN'T THERE?
20 A. THE CHRONICLE, IT -- THE CHRONICLE HAS ITS OWN RIGHT TO
21 FIX WHAT? SAY THE QUESTION AGAIN.
22 Q. TO FIX ITS RATES.
23 A. THE RATES.
24 Q. ADVERTISING RATES.
25 A. THE RATES BETWEEN THE TWO WERE MANAGED BY THE SFNA. 748
GREENTHAL - CROSS / ALIOTO
1 Q. LET ME TRY THE QUESTION AGAIN.
2 UNDER THE JOA THE CHRONICLE HAS --
3 A. I DON'T KNOW WHAT THE JOA SAYS, BUT I KNOW THAT, AS A
4 PRACTICAL MATTER, WHICH I ASSUME IS GOVERNED BY THE JOA, THAT
5 THE RATES FOR THE TWO NEWSPAPERS WERE SET BY THE SFNA.
6 Q. OKAY. SO I THOUGHT YOU SAID, THOUGH, ON YOUR DIRECT
7 EXAMINATION THAT YOU READ AND FAMILIARIZED YOURSELF WITH THE
8 JOA.
9 A. I DID. I JUST DON'T REMEMBER EVERY DETAIL OF IT. THAT
10 WAS -- WE DID THIS A YEAR AGO.
11 Q. YES. BUT, I MEAN, THE SETTING OF THE ADVERTISING RATES
12 AND THE SETTING OF THE CIRCULATION RATES -- I MEAN, THAT'S NOT
13 A DETAIL. THAT IS -- THAT IS ABSOLUTELY FUNDAMENTAL, ISN'T IT,
14 ABOUT COMPETITION?
15 A. WHAT IS IN PARTICULAR MEMORIALIZED IN THE JOA IS A
16 SEPARATE QUESTION. I ASSUME THAT'S WHAT GOVERNED IT. I DON'T
17 RECALL WHAT'S WRITTEN THERE. I KNOW THAT THEY HAD A CENTRAL --
18 THE SFNA SET THE RATES.
19 Q. OKAY. SO WHAT YOU KNOW IS REGARDLESS OF WHAT MAY BE IN
20 THE JOA, YOU KNOW THAT THOSE GUYS AGREED ON THE RATES?
21 A. I KNOW THAT THE SFNA SET THE RATES.
22 Q. YES. SO YOU UNDERSTOOD THAT THE CHRONICLE AND THE
23 EXAMINER AGREED ON THE RATES, THEN, CORRECT?
24 A. I TESTIFIED TO WHAT I UNDERSTOOD.
25 Q. SO THEY DIDN'T AGREE ON THE RATES? 749
GREENTHAL - CROSS / ALIOTO
1 A. THE SFNA -- WHAT PART OF WHAT I AM SAYING IS HARD TO
2 UNDERSTAND? THE SFNA SETS THE RATES. THE CHRONICLE AND THE
3 EXAMINER ARE TWO NEWSPAPERS GOVERNED BY THE SFNA. THAT IS THE
4 ENTITY THAT MANAGES THOSE BUSINESSES. SO I DON'T -- I AM NOT
5 SURE WHY THAT'S CONFUSING.
6 Q. IF IN FACT THE JOA ALLOWS BOTH OF THESE PARTIES TO
7 SEPARATE -- MAKES IT THEIR RESPONSIBILITY TO SET THEIR OWN
8 RATES, YOU -- AND THEY DON'T THAT, THEY WOULD HAVE TO AGREE IF
9 THEY DON'T DO THAT, WOULDN'T THEY?
10 A. YOU KNOW, I AM NOT FOLLOWING YOUR QUESTION.
11 Q. OKAY. WELL, WHEN YOU SAID -- WHEN YOU SAY THERE WAS NO
12 COMPETITION BEFORE 2005 --
13 A. IT'S BECAUSE IT WAS -- THE TWO NEWSPAPERS WERE RUN BY ONE
14 ENTITY, THE SFNA.
15 Q. YEAH. SO IT'S YOUR -- SO THE REASON THAT YOU ARE SAYING
16 THAT IS THAT IT'S YOUR UNDERSTANDING THAT ANY RATES FOR
17 CIRCULATION, ADVERTISING OR OTHERWISE WERE SET BY THE SFNA. IT
18 WAS NOT SET BY THE INDEPENDENT COMPANIES. THAT'S YOUR
19 UNDERSTANDING?
20 A. BY THE HEARST CORPORATION OR CHRONICLE PUBLISHING COMPANY.
21 Q. OKAY. ALL RIGHT.
22 NOW, LET'S GO TO THE "NO RESOLUTION" ON THE RIGHT
23 SIDE AND "WAR."
24 AND WHEN IT SAYS "NO RESOLUTION," THAT MEANS THAT
25 THE QUESTION -- THAT'S NO RESOLUTION OF THE JOA, CORRECT? 750
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q. OKAY. NOW, IF YOU WILL GO TO THE FIRST PART ON THE
3 LEFT-HAND SIDE ABOUT CIRCULATION --
4 A. YEAH.
5 Q. -- UNDER THE ONE NEWSPAPER, "JOA RESOLUTION OR HEARST
6 WALKS," IT STATES, QUOTE, "92 PERCENT OF COMBINED CIRCULATION
7 IS KEPT (OTHER MARKETS AVERAGE 80 PERCENT)."
8 NOW, THAT MEANS, DOES IT NOT, THAT OF THE -- OF THE
9 CIRCULATIONS OF BOTH NEWSPAPERS, IF IT'S JUST THE CHRONICLE,
10 THE CHRONICLE WILL BE ABLE TO KEEP 92 PERCENT OF THAT?
11 A. IF THE EXAMINER GOES OUT OF BUSINESS, IT'S 92 PERCENT OF
12 THE COMBINED READERSHIP WOULD REMAIN WITH THE CHRONICLE IS WHAT
13 THAT IS MEANT TO SAY.
14 Q. WELL, NO, NOT IF THE EXAMINER GOES OUT OF BUSINESS. IT'S
15 IF THEY WALK. THAT MEANS THAT THEY'RE -- THAT'S DOING
16 SOMETHING VOLUNTARY, RIGHT?
17 A. IT SAYS ONE NEWSPAPER.
18 Q. OKAY. ALL RIGHT.
19 NOW, THEN, IF YOU CAN'T DO THAT AND YOU GO TO WAR,
20 THEN IT SAYS, QUOTE:
21 "EXAMINER LOSES 25,000 OVERLAPPING
22 SUBSCRIBERS BUT GAINS 50,000 SUBSCRIBERS WITH
23 PRICE COMPETITION RESULTING IN 25,000 NET
24 SUBSCRIBERS LOSS FOR CHRONICLE."
25 DO YOU SEE THAT? 751
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q. OKAY. SO THAT MEANS THAT -- THAT MEANS THAT EVEN THOUGH
3 THE EXAMINER MIGHT LOSE -- THIS ISN'T A WAR. THIS IS HEAD TO
4 HEAD, RIGHT?
5 A. I --
6 Q. WAR. THIS IS -- THIS MEANS COMPETING, THE EXAMINER AND
7 THE CHRONICLE.
8 A. THAT'S -- THAT'S WHAT IT MEANS.
9 Q. RIGHT. OKAY. ALL RIGHT.
10 THIS COMPETITION, EXAMINER -- EXAMINER COMES OUT
11 25,000 SUBSCRIBERS AHEAD OF THE CHRONICLE UNDER THIS VIEW,
12 CORRECT?
13 A. THE EXAMINER GAINS 25,000 IS STILL WAY BEHIND THE
14 CHRONICLE IN TERMS OF TOTAL CIRCULATION.
15 Q. I AM GOING TO TRY IT AGAIN.
16 A. THAT'S WHAT YOU JUST -- THAT'S FINE. ASK THE QUESTION SO
17 I CAN ANSWER IT THE WAY YOU WANT ME TO.
18 Q. THIS SHOWS THAT THE EXAMINER ENDS UP WITH 25,000 MORE
19 SUBSCRIBERS THAN IT HAD, CORRECT?
20 A. THAN IT HAD?
21 Q. YES.
22 A. THAT'S CORRECT. THAT'S NOT WHAT YOU ASKED.
23 Q. OKAY. AND IT ALSO SHOWS -- AND IT ALSO SHOWS THAT ONE OF
24 THE REASONS FOR THAT IS PRICE COMPETITION.
25 A. THAT'S THE SUGGESTION IN THE SCENARIO, YES. 752
GREENTHAL - CROSS / ALIOTO
1 Q. AND IT SHOWS THAT THE CHRONICLE LOSES 25.
2 A. RIGHT, OFF OF ITS EXISTING BASE.
3 Q. OKAY. AND, AGAIN, THE ONLY REASON FOR THAT IS PRICE
4 COMPETITION, CORRECT?
5 A. NO.
6 Q. THAT'S THE ONLY REASON GIVEN HERE?
7 A. THA