In 2009, Warren Buffett, Chairman and CEO of Berkshire Hathaway Inc. (BRK.A) (BRK.B), stated that it was not very reasonable to continue his ownership of the newspaper business. He did not particularly like the practice of newspaper companies providing news online for free, yet charging for the same in print. According to Buffett, online news posed a threat to the print medium.
However, it seems that Buffett’s outlook toward the future of the newspaper industry has changed and Thursday’s announcement to acquire 63 daily and weekly newspapers from Media General, at approximately 100% premium to Media General’s current market capital, points to the fact.
Berkshire Hathaway is expanding its newspaper business by paying a total amount of $142 million. It will also aid Media General, loaded with debt and ailing with decreasing earnings, by providing a loan of $400 million and $45 million of revolving credit. As a result of this financing, Buffett will gain control over 19.9% of Media General’s outstanding shares.
The deal is expected to close toward the end of June. Per the deal, Berkshire will own all newspapers owned by Media General except the Tampa Tribune of Florida and some smaller newspapers in the region. Some of the papers acquired include Richmond Times-Dispatch in Virginia, the Winston-Salem Journal in North Carolina and the Morning News of Florence, S.C., among others.
In November 2011, Buffett announced the purchase of The Omaha World-Herald Company, publisher of Nebraska’s principal daily newspaper, for $200 million. The deal added the World-Herald, six other daily newspapers and several weekly newspapers to the company’s media business portfolio. Berkshire’s media business portfolio also includes Business Wire and The Washington Post Co. (WPO).
Buffett’s altered opinion indicated that he was optimistic about the newspaper industry and considered it to be an institution, which holds a lot of importance in regions with a strong sense of community. He also believes that newspapers, which have been facing stiff competition from digitization, can prevent waning sales by focusing on providing community news.
Despite being a small budget deal, it has managed to create a stir, particularly amongst those who follow Buffett’s investment moves. Now that Buffett has changed his bearish outlook on the print media industry, we may witness new investment activity in this domain.
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis Report
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report
WASHINGTON POST (WPO): Free Stock Analysis Report
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