The owner of the Los Angeles Times was selected as the top bidder for the Orange County Register and Riverside Press-Enterprise during the papers' bankruptcy auction, but the U.S. Department of Justice immediately filed a lawsuit to block the deal Thursday on antitrust grounds.
The government sought a temporary restraining order within hours of the announcement that Tribune Publishing's $56-million bid for bankrupt Freedom Communications had topped a competing offer from the owner of the Los Angeles Daily News.
"If this acquisition is allowed to proceed, newspaper competition will be eliminated and readers and advertisers in Orange and Riverside counties will suffer," Assistant Atty. Gen. Bill Baer of the Justice Department's Antitrust Division said in a statement.
Tribune Publishing has vowed to defend the legality of the sale.
"The Division is living in a time capsule, with a framework that predates the arrival of iPhones, Google, Facebook, and modern media outlets that are killing the traditional newspaper industry," spokeswoman Dana Meyer said in a statement. "It wasn't competition from the L.A. Times that forced the Register into bankruptcy. It was the Internet and related technology."
The Justice Department had warned earlier in the week that it would intervene if Tribune Publishing won Freedom's assets.
The government said it did not have concerns with competing bids from Daily News owner Digital First Media or a group of Freedom insiders.
The move complicates a hearing scheduled Monday in Santa Ana before U.S. Bankruptcy Court Judge Mark Wallace, who must approve Tribune's bid for the sale to go through. The Santa Ana newspaper publishing company filed for Chapter 11 bankruptcy protection in November.
Robert K. Rasmussen, a bankruptcy expert at the USC Gould School of Law, said the judge will probably want to see if antitrust issues can be resolved relatively quickly, perhaps in a settlement, to help Freedom pay back its creditors.
The government argued the deal would allow Tribune to control 98% of the sales for English-language local daily newspapers in Orange County. And in Riverside County, Tribune would own four of the top five English-language newspapers by circulation.
George S. Georgiev, a business law professor at the UCLA School of Law, said the Justice Department's lawsuit indicates it believes it has a strong case.
"DOJ doesn't like to lose," he said. "I think they have thought pretty carefully about this and they really believe they can prevail or at least extract significant concessions," he said, such as agreeing to certain operating restrictions or selling off some assets.