DETROIT, AUG. 20 -- An economist testified today he believes Gannett Co. Inc. Chairman Allen H. Neuharth would not have agreed to split profits evenly under a joint operating agreement if he considered the Detroit Free Press a failing newspaper.
However, Kenneth Baseman, a consultant, conceded he did not know what Neuharth was thinking when he signed the operating pact with Knight-Ridder Inc., which owns the Free Press.
"I can't read the mind of anyone at Gannett," Baseman said at a public hearing on the proposed agreement. "In the deal that he struck, he may have traded off profits for other things."
Baseman was the third of four witnesses called by the antitrust division of the U.S. Justice Department.
Under a JOA, the Free Press and the Detroit News would combine their business operations and share profits for 100 years while maintaining separate news and editorial page operations.
The newspapers say they need a JOA to stem $142 million in losses since 1981, and have said the Free Press will fail without an agreement. Knight-Ridder Chairman Alvah H. Chapman Jr. testified last week that he would recommend closing the Free Press if the JOA is rejected.
Attorney General Edwin Meese III is expected to decide next year whether to approve the JOA, but he first must determine whether the Free Press is in danger of financial failure.
Baseman testified that the 50-50 split of profits after the first five years of the agreement shows that neither Gannett nor Knight-Ridder believes the Free Press is failing.
"A share considerably smaller should have been sufficient to induce Knight-Ridder to enter a JOA if, in fact, the Free Press was failing," Baseman said. He said he believed a 60-40 split in favor of Gannett would be "the bare minimum that Gannett could accept and have this deal make any economic sense."
Baseman said that if Gannett expected the Free Press to fail in less than 10 years, Gannett stood to make more money by letting the Free Press go out of business.
"If they believed the Free Press would fail soon, they're throwing away millions of dollars by agreeing to this particular JOA," he said.
However, under cross-examination by newspaper attorney Robert Bernius, Baseman conceded that he had not interviewed Neuharth or any other top Gannett executives and did not know how much weight they had given to noneconomic issues.
Baseman acknowledged that Gannett might have sacrificed profits in exchange for a 3-2 majority on the board that would manage the JOA, or simply to avoid the risk that the News might make a critical mistake under continued competition