LEE Lee Enterprises Inc

By Nicole Friedman and Allison Prang 

Warren Buffett's Berkshire Hathaway Inc. is selling its newspapers to publisher Lee Enterprises Inc. for $140 million, a rare admission by the billionaire investor that he views his current newspaper business as unsustainable.

Mr. Buffett, a lifelong newspaper lover, has said for years that Berkshire's newspaper business declined faster than he expected. In mid-2018, Berkshire hired Lee to manage all of its newspapers except the Buffalo News.

The sale announced Wednesday includes the Buffalo News along with the dozens of newspapers that Lee already manages for Berkshire, Lee said. Berkshire's newspaper collection includes the Tulsa World in Oklahoma, the Richmond Times-Dispatch in Virginia and Mr. Buffett's hometown paper in Nebraska, the Omaha World-Herald.

Berkshire is famous for hardly ever selling any of its operating businesses. In an "owner's manual" for Berkshire shareholders posted on the company's website, Mr. Buffett wrote, "Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are also very reluctant to sell subpar businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations."

Berkshire's newspapers excluding the Buffalo News logged $373.4 million in revenue and $14.9 million in net income in 2019, Lee said. The newspapers' earnings have been declining for years.

But Berkshire isn't giving up on the newspaper industry entirely. As part of the sale, Berkshire is lending Lee $576 million at a 9% annual rate. Lee will use the money to pay for the acquisition, refinance its $400 million in existing debt and close its current credit facility, making Berkshire its only lender.

"We had zero interest in selling the group to anyone else for one simple reason: We believe that Lee is best positioned to manage through the industry's challenges," Mr. Buffett said in a statement Wednesday.

Lee's stock soared on the news, recently trading up 83% at $2.30.

With the deal, Lee will run 81 daily papers, up from 50. The company currently owns news outlets such as the St. Louis Post-Dispatch and the Arizona Daily Star in Tucson.

Lee said the deal should boost profits immediately. It also said it has found between about $20 million and $25 million in future savings.

Berkshire's newspapers have already shrunk considerably. The newspaper division and the Buffalo News employed 3,685 people at the end of 2018, down from 4,337 a year earlier, according to Berkshire's annual reports.

Berkshire bought the Buffalo News in 1977 for about $34 million in cash. In 2011, Berkshire bought the Omaha World-Herald and six other daily papers for about $200 million including debt. The following year, it spent $142 million to buy 63 newspapers from Media General Inc.

Labor relations at some of Berkshire's newspapers have changed since the company outsourced its management to Lee. The newsrooms at the Omaha World-Herald, Mr. Buffett's hometown newspaper in Nebraska and the Charlottesville Daily Progress in Virginia voted to form unions.

The Buffalo News and the Richmond Times-Dispatch were already unionized. The World-Herald's union met last year with Mr. Buffett and one of his portfolio managers, Ted Weschler, and the executives authorized the union's leadership to try to find a local buyer for the newspaper, said Todd Cooper, a World-Herald reporter and the union's president. The union's leadership had approached some potential buyers and was planning to continue to search when the Lee acquisition was announced Wednesday, he said.

"We're blindsided here, and disappointed," Mr. Cooper said. "I'm shocked that [Mr. Buffett] is putting his hometown newspaper into the hands of a national chain."

Mr. Weschler said in an interview that the Lee deal came together quickly. "It would have been great to keep it local," he said of the World-Herald's ownership. "Unfortunately at the end of the day, [the union's leaders] weren't able to put a transaction together."

Mr. Buffett's decision to exit from the newspaper business underscores the widening divide in media between the handful of large, national players, including The Wall Street Journal, the New York Times and the Washington Post, and chains of smaller papers.

The national players have had much greater success transitioning from the shriveling print business to digital revenue, fueled by online subscriptions and new licensing deals with Facebook Inc. Local and metro papers are under increasing stress, still reliant on ad revenue, and a shakeout of the major chains is under way as they look for a path forward.

USA Today owner Gannett Co. recently was acquired by GateHouse Media, betting that scale is the answer. McClatchy Co. is in talks for a government takeover of its pension fund and has warned it could soon file for bankruptcy. And a hedge fund known for severe cost-cutting, Alden Global Capital, recently became the largest shareholder in Tribune Publishing Co.

Mr. Buffett delivered newspapers in his youth. For years, he challenged shareholders to a newspaper-tossing contest at Berkshire's annual meetings. In the 1970s, he owned a now-defunct Omaha weekly and helped guide its investigation into a local charity, which won a Pulitzer Prize.

In 2019, Berkshire sold one operating business, a workers' compensation insurer called Applied Underwriters. Before that, analysts were hard-pressed to remember any business the conglomerate had sold in recent decades.

Berkshire's deal with Lee is expected to close in the middle of March. Lee also said it is going to enter into a 10-year lease agreement for the media group's real estate at an initial cost of $8 million a year.

--Lukas I. Alpert and Alison Prang contributed to this article.

Write to Nicole Friedman at nicole.friedman@wsj.com and Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

January 29, 2020 14:33 ET (19:33 GMT)

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