Freedom Communications has now chosen Digital First Media to buy its two newspapers because it no longer believes Tribune Publishing can close the deal, an attorney for the bankrupt company said.
The Los Angeles Times owner had been the top bidder, but its $56-million cash offer to buy the Orange County Register and Riverside Press-Enterprise hit a roadblock late Friday when a U.S. District Court judge approved a temporary restraining order to stop the sale.
With time running out -- Freedom's financing ends March 31 -- the company said it instead plans to sell its assets to Digital First Media, which owns the Los Angeles Daily News and eight other Southern California papers. It bid $52.3 million.
"It's hard to imagine the Tribune has any ability whatsoever to close the transaction" by that deadline, Freedom attorney Alan Friedman said. Freedom's lender, Silver Point Capital, hasn't indicated any willingness to extend the March 31 date.
U.S. Bankruptcy Judge Mark Wallace must sign off on any deal, and a hearing on the matter has been scheduled for Monday.
The bankruptcy sale took a dramatic turn on Thursday when the U.S. Department of Justice sought a restraining order just hours after Tribune was named the top choice. The government cited antitrust concerns that the sale would harm competition and allow Tribune, which also owns the San Diego Union-Tribune, to raise prices to advertisers and subscribers in Orange and Riverside counties.
U.S. District Judge Andre Birotte Jr. said in his ruling that the government has shown "a likelihood of success on the merits of its claim."
He noted that "local newspapers continue to serve a unique function in the marketplace: they are the creators of local content. It further stands to reason that local advertisers in search of print advertising would choose to advertise with local news providers."
Tribune Publishing spokeswoman Hillary Manning said the company was reviewing its options.
"We believe the Antitrust Division continues to overlook the commercial realities of modern media in which Internet-delivered services are aggressively competing with the newspaper industry," Manning said.
"The practical effect of the order will be to force Freedom's newspapers into the hands of an alternative bidder that will be less able to reduce cost and achieve efficiencies, with the likely effect that the journalism serving the local communities will be diminished."
Tribune and other media and antitrust experts have criticized the government's argument as outdated.
Gabriel Kahn, co-director of the Media, Economics and Entrepreneurship program at USC's Annenberg School for Communication and Journalism, said the government's concerns over a monopoly on news and advertising were out of place in today's digital age.
"It's the equivalent of cornering the market in horse-drawn buggies," he said. "There are simply other ways to get to your destination."
Instead, he argued that the sale to Tribune would result in more robust news coverage in the region by putting the papers on a firmer financial footing.
"This combination offers the best plausible chance to create a sustainable business model in covering the news in Southern California," he said.
That's unlikely to happen if the Register and Press-Enterprise are sold to Digital First, given the chain's limited reach in Southern California, Kahn said.
"They are not going to achieve the same savings in printing and distribution," he said. "And their products aren't as strong."
Teri Sforza, a longtime reporter for the Register, said the newsroom remains committed to the Orange County community, no matter who purchases the paper. But she noted the Justice Department's argument seems dated to many Register reporters.
"Given the last decade or so, a lot of us find the DOJ's notion of newspaper competition a bit behind the times - but that's not our decision to make," said Sforza, who writes the O.C. Watchdog Column for the Register.
Friedman said he expected Digital First to prevail Monday.
Tribune, which last year purchased the San Diego Union-Tribune, took a gamble by believing it could overcome antitrust concerns from the government, he said.
"It looks like Digital First was right and the Tribune was wrong," Friedman said.