It is no secret that the newspaper business has not been a good sector over the last decade. Subscriptions declined about as fast as the number of smokers did in the 1990s. The business model of distributing newspapers has been gutted as job search car sales, selling homes, and most other key advertising areas has moved to the internet. So why is Warren Buffett spending millions of dollars to buy a bunch of regional newspapers?
News came on Thursday morning that Berkshire Hathaway Inc. (NYSE: BRK-B) (NYSE: BRK-A) has reached a deal with Media General, Inc. (NYSE: MEG) to buy all of Media General’s newspapers outside of the Tampa paper. Buffett is joining a sector that has wrecked many private equity firms looking for deals over the last decade in printed news. The price tag is listed as $142 million in cash, but Berkshire Hathaway will simultaneously issue a $400 million term loan and a $45 million revolving credit line.
Today’s news is likely to bring a focus on other newspaper outfits around the nation. Some companies with high concentrations in newspapers are Gannett Co., Inc. (NYSE: GCI), The McClatchy Company (NYSE: MNI), Daily Journal Corp. (NASDAQ: DJCO), A. H. Belo Corporation (NYSE: BLC), Lee Enterprises Inc. (NYSE: LEE).
Berkshire Hathaway also owns 1.7 million shares of The Washington Post Company (NYSE: WPO), although Warren Buffett does not hold a board seat any longer. Does it beg the question, “Does this increase or decrease the value of The New York Times Company (NYSE: NYT)?”…
Media General will also issue Berkshire Hathaway ‘penny warrants’ for approximately 4.6 million Class A shares and that will give Buffett the right to buy 19.9% of Media General’s existing shares outstanding. Berkshire Hathaway also has the option to nominate a director to Media General’s board of directors.
The newspaper sale includes websites and mobile applications and these outfits have commercial printing businesses as well. These include 63 daily and weekly titles in Virginia, North Carolina, South Carolina and Alabama.
Dare we say Buffett is back to his paper route he had as a teenager? Mr. Buffett said, “In towns and cities where there is a strong sense of community, there is no more important institution than the local paper. The many locales served by the newspapers we are acquiring fall firmly in this mold and we are delighted they have found a permanent home with Berkshire Hathaway.”
The move will allow Media General to focus on the broadcast television business, which accounted for some 77% of its 2011 platform cash flow in 2011.
Media General closed at $3.14 on Wednesday and its 52-week range is $1.14 to $6.84. Its shares are indicated up about 40% around $4.75 in early indications. With this newspaper and media outfit up so much, it may be safe to expect that other newspaper outfits could be worth more money than their battered shares indicate.
JON C. OGG