E. CPC’S DECISION TO SELL

The Chronicle’s owners blinked first. Faced with the prospect of a "war" with Hearst, increased competition in the San Francisco newspaper market after the JOA, CPC hired an investment banker to advise on how best to liquidate its holdings, including The Chronicle. The investment banker, Donaldson, Lufkin & Jenrette ("DLJ"), advised CPC that the terms of the JOA, and Hearst’s enforcement of those terms, placed CPC in the difficult position where its choices were (1) go to "war" with Hearst in the marketplace; (2) accept a depressed offer from a third party unwilling to pay full value for The Chronicle because of the JOA; or (3) sell The Chronicle to Hearst. (PX 4, PX 5, PX 9.) The "war" scenario envisioned by DLJ included "substantial price cuts at Examiner with modest price cuts at Chronicle" and "significant ad price competition with 15% and 10% rate declines at Examiner and Chronicle, respectively." (PX4.) In the absence of "war," DLJ saw increasing prices and profits for The Chronicle. (Id.)

Simply by enforcing the JOA, Hearst drove CPC to Hearst as the only buyer for The Chronicle. In a declaration filed in this case, CPC CEO Sias concluded, "Only Hearst has the ability to buy The Chronicle without assuming The Chronicle’s obligations under the JOA to subsidize The Examiner. As a result, Hearst is the only purchaser from which CPC can obtain the fair market value for The Chronicle." (PX 50.)

Consequently, on August 6, 1999, CPC entered into an agreement to sell The Chronicle to Hearst for $660 million, $150-250 million more than CPC could have obtained from any other buyer. (PX 10, PX 11; PX 50.)