Times Mirror Option to Buy Daily News Disclosed

Times Mirror Co., owner of the Los Angeles Times, has an option to purchase the Daily News of Los Angeles under a 2-year-old agreement, Times Mirror and the Daily News’ parent company confirmed Wednesday.

Although parties on both sides indicated that such a purchase was unlikely, in part because of antitrust issues, the possibility of a sale raised questions among community leaders over the potential loss of another media voice in Southern California.

Separately, The Times said it was changing its method of measuring circulation, lowering its weekday count by 3.6%, below what it previously reported for the period ended March 31.

John Puerner, a Tribune executive who was named publisher of The Times last month, said he “has a different philosophy” from the publication’s previous management about how to count circulation. And although the previous numbers were allowable based on the rules of the Audit Bureau of Circulations, an independent agency that reviews circulation statistics, he felt it was best to cut back to what he considered a “core” base.

The Daily News purchase option was referred to only in vague terms in a footnote to documents filed with the Securities and Exchange Commission by Garden State Newspapers, which controls the Daily News, the Long Beach Press-Telegram and several smaller publications in Southern California. The document did not name Times Mirror or the Daily News as being parties to the agreement. The companies did not confirm the names until Wednesday.

In its filing, Garden State said only that it was paid $2.4 million to grant an option “to a third party to purchase substantially all the assets used in the publication of a certain newspaper beginning in 2003 and expiring in 2010 at the newspaper’s fair market value.”

Garden State discounted the possibility of such a deal ever happening.

“There’s no way this could ever be exercised,” said Joseph J. Lodovic IV, chief financial officer of Denver-based Garden State, adding that such a deal would run afoul of federal officials who monitor antitrust issues. “The Justice Department has watched every move we have made.”

Lodovic said the option grant was part of a $50-million loan by Times Mirror to Garden State that helped finance Garden State’s $130-million purchase of the Daily News in 1998. He said $2.4 million of the loan was attributed to the option and the remainder was treated as standard debt.

“This was a financing transaction with the option serving as an incentive for both parties to work together in the market in ways that the Justice Department will allow,” Lodovic said.

The Times and Garden State have an agreement in which advertisers can buy inserts to run in both The Times and Garden State’s newspapers in the region. Additionally, Times Mirror has a minority investment in MediaNews Group, an affiliate of Garden State.

The advertising agreement prompted a review by the Justice Department, which also looked at the option and the loan.

Dean Singleton, president and chief executive of Denver-based MediaNews Group, downplayed the significance of the option.

The option is “a nonevent. It’s nothing that can ever happen,” Singleton said.

A spokeswoman for Times Mirror characterized the transaction with Garden State as “a broad financial agreement.” Other than noting that the earliest that Times Mirror successor Tribune Co. could purchase the Daily News would be 2003, the spokeswoman would say only that such a transaction would be subject to government approval.

But reaction at Los Angeles City Hall to the existence of the option was one of surprise. Councilman Mike Feuer said changes in the ownership of a city’s newspaper are significant events in its cultural and civic life.

“I think it’s always good for a city the size of Los Angeles to have more than one newspaper. It assures a diversity of opinion,” Feuer said. “I don’t know of a model where two newspapers under one ownership have maintained a diversity of opinion and views.”

City Councilman Joel Wachs voiced similar concerns. “It’s very important to have more than one voice in this city.” Wachs added, however, that his fears were partly eased by Singleton’s statement that he doesn’t expect the option to be exercised.

According to the option agreement, Times Mirror, which itself is being acquired for $6.8 billion by Chicago-based Tribune Co., can require Garden State to repurchase the option at any time after 2003 based on an undisclosed formula. Similarly, according to the documents, if The Times does not buy the Daily News by 2010, Garden State must repurchase the option based on the same formula.

“We plan to buy it back and repurchase the note,” Lodovic said.

James Goss, an analyst with Barrington Research in Chicago, said that there could be significant antitrust issues. With a weekday circulation of more than 1.1 million, The Times dominates readership in Los Angeles. The Daily News has a circulation of just over 200,000, primarily in the San Fernando Valley.

Nonetheless, Goss said, a successful purchase of the Daily News by The Times would be “a logical brand extension.”

Ironically, Tribune once owned the Daily News, purchasing it from the family that published the paper as a semiweekly shopper and built the publication into a daily. It was forced to divest the publication by federal regulators when Tribune purchased KTLA in 1986.

News of the option came Wednesday at the same time Puerner said daily circulation was 1,111,785 papers, nearly 42,000, or 3.6%, below what was listed in the Audit Bureau of Circulations’ report for the six months that ended March 31. Still, that was 1.2% above where The Times stood for the same six-month period a year earlier.

Sunday circulation was revised downward to 1,384,688, a change of 4,039 papers from the prior statement and a dip of 1,099 papers from the same period a year earlier.

About 75% of the reduction resulted from the discontinuation of so-called “bonus days” in which sample weekday newspapers were distributed to Sunday subscribers and were counted as paid circulation. The remainder came from the method of counting the papers distributed in a joint marketing program with the Spanish-language daily La Opinion.

“This puts us on a firmer footing from which we will have a better ability to grow circulation in the future,” Puerner said.

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Times staff writers Jeffrey Gettleman, Karen Robinson-Jacobs and Patrick McGreevy contributed to this report.