By Nicole Friedman
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.
Berkshire will still have financial exposure to the newspaper
industry. 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 67% Wednesday to $2.10.
The privately held media group MNG Enterprises Inc. said
Wednesday it bought a 5.9% stake in Lee and plans to discuss the
company's strategy with its management, including the Berkshire
deal. MNG, which publishes dozens of newspapers across the country,
has been an active acquirer and is known for aggressive
cost-cutting at its titles. It is backed by hedge fund Alden Global
Capital LLC, which became the largest shareholder in Chicago
Tribune owner Tribune Publishing Co. in November 2019.
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 and the Daily Progress in
Charlottesville, Va., voted to form unions. The Buffalo News and
the Richmond Times-Dispatch were already unionized.
The Omaha 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. McClatchy Co. is in talks for a government takeover of its
pension fund and has warned it could soon file for bankruptcy.
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, Corrie Driebusch and Allison Prang
contributed to this article.
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
January 29, 2020 17:42 ET (22:42 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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