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Warren Buffett’s Newspaper Purchases

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Berkshire Hathaway Completes Media General Newspapers Deal

On 6/25/2012, World Media Enterprises Inc (a subsidiary of Warren Buffett’s Berkshire Hathaway [BRK.A /BRK.B]), completed its acquisition of 63 daily and weekly newspapers from Media General Inc [MEG], for $142 million in cash and a $445 million loan to Media General.  The closing of the deal marks what is likely the the largest newspaper acquisition in just a short period of several months, which saw Warren Buffett’s Berkshire Hathaway purchase numerous newspapers.   Until recently, Berkshire owned only one daily newspaper, The Buffalo News, which was purchased in 1977.

The deal was made on 5/17/2012.  Media General announced that they had signed agreements with Berkshire, for the sale of its newspapers and for new financing.  BH Media Group (a subsidiary of Berkshire Hathaway) would purchase all of the newspapers owned by Media General, with the exception of the Tampa group (would find other buyers).  Under a separate agreement, Berkshire would provide Media General with a term loan of $400 million, as well as revolving credit of $45 million.  Media General would also issue penny warrants for approximately 4.6 million Class A shares (representing a 19.9% stake in Media General).  Berkshire Hathaway would also have the option to nominate a director to Media General’s Board.

The completed deal should give Berkshire’s firm control of newspapers mainly in Virginia, Tennessee, and North Carolina.  This likely includes the Richmond Times-Dispatch, The News & Advance, Bristol Herald Courier, The Daily Progress, Danville Register & Bee, News & Messenger, Culpeper Star-Exponent, The News Virginian, Eden News (Eden, NC), The Reidsville Review (Reidsville, NC), The Winston-Salem Journal, Hickory Daily Record, Statesville Record & Landmark, The News Herald, The McDowell News, Concord Independent Tribune (Concord/Kannapolis, NC), and other newspapers.

 

Buffett Continues To Buy Small-Medium Sized Newspapers

On 6/22/2012, Berkshire Hathaway purchased the Waco Tribune-Herald from Robinson Media LLC.  Terms of the deal were not disclosed, and the transaction is expected to close July 31.  Robinson Media is a Waco family business that purchased the newspaper from Atlanta’s Cox Enterprises in 2009.

On 6/12/2012, Berkshire purchased Texas newspaper, The Bryan-College Station Eagle, which is expected to close June 30.  The paper will operate under the Omaha World-Herald Co. (a subsidiary of Berkshire Hathaway).

On 6/5/2012, Berkshire disclosed a 3% stake in Lee Enterprises, Incorporated [LEE].  The filing was an amendment to the original stock portfolio update for Q1 2012 filed with the SEC on 5/15/2012 (form 13F).  Berkshire had original requested that confidential treatment be given for its stock purchase of Lee, which was rejected by the SEC on 5/25/2012.

Amendment to 13F filed 6/5/2012:
http://www.sec.gov/Archives/edgar/data/1067983/000119312512260151/d361607d13fhra.txt

 

‘Probably Purchase More Papers In The Next Few Years’

On 5/25/2012, Warren Buffett wrote a letter to Berkshire Hathaway publishers.  In the letter he outlined his plan to purchase more small to medium sized newspapers, and the rationale:

“Berkshire buys for keeps. Our only exception to permanent ownership is when a business faces unending losses, a remote prospect for virtually all of our dailies.”

“Though the economies of the businesses have drastically changed since our purchase of The Buffalo News, I believe newspapers that intensively cover their communities will have a good future.

“make your paper indispensable to anyone who cares about what is going on in your city or town.

“No one has ever stopped reading when half-way through a story that was about them or their neighbors.

our future depends on remaining the primary source of information in certain subjects of great importance to our readers.  Technological change has caused us to lose primacy in various key areas, including national news, national sports, stock quotations and employment opportunities. So be it. Our job is to reign supreme in matters of local importance.”

“We must rethink the industry’s initial response to the Internet.  The original instinct of newspapers then was to offer free in digital form what they were charging for in print.  This is an unsustainable model”

“Berkshire will probably purchase more papers in the next few years.  We will favor towns and cities with a strong sense of community”

“we will focus on small and mid-sized papers in long established communities.

Read the full letter, posted online at the Omaha World Herald.  

 

Buffett’s Purchase Of Hometown Newspaper

On 11/30/2011, Berkshire Hathaway announced it would acquire the Omaha World-Herald Company. The transaction closed in late December 2011. Financial terms were not disclosed.

 

The Lesson In All This?

So what important lesson should investors take away from Buffett’s newspaper ambitions?   

Even though the general business economics or trend for an industry may look like it is declining and becoming unprofitable, it doesn’t mean that all businesses in the same industry will experience the same decline and poor profitability. 

We’ve seen an example of this within the airline industry.  In the past decade, airlines worldwide have experienced increasingly difficult business economics, with rising fuel prices a major contributing factor to profit declines.  Numerous airlines that were once household names declared bankruptcy, while others formed alliances (Star Airline Alliance, Oneworld) and merged in order to survive.  Some well known examples of airline bankruptcies include:

United Airlines / UAL Corporation (CH 11 bankruptcy protection – December 2002)
Air Canada (bankruptcy protection – April 2003)
Japan Airways (CH 11 bankruptcy protection – January 2010)
AMR Corporation (CH 11 bankruptcy protection – November 2011)

Berkshire’s extremely profitable NetJets subsidiary is a prime example that defies the larger trend.  Netjets is a small business jet charter and aircraft management company.  Over the past decade we’ve seen some smaller and regional airlines that have found profitability & success.

 

FULL DISCLOSURE: I am long Berkshire Hathaway.  I do not plan on acquiring or selling shares within the next 3 trading days.

Thanks & Happy Investing! — The Investment Blogger © 2012