Yesterday, billionaire Warren Buffett, revealed that his company Berkshire Hathaway is buying up 63 Media General newspapers for a total of $142m. As the Tampa Bay Times reports, a $400m loan and $45m in credit to help Media General pay off its debts are also part of the deal.
The sale is quite a turn around for the man who famously said in 2009 that he would not consider buying most papers in the US “at any price” because “they have the possibility of going to just unending losses.” And it has certainly raised some eyebrows. “Maybe he something we don’t…” begins the Business Etc article on the deal.
Why did Buffett’s company do it? The Omaha World-Herald, a paper that Buffett bought for $200m last November, quotes Ed Atorino, a managing director and analyst at The Benchmark Company, who suggests the deal is ideologically driven. “Berkshire's not in this as a financial transaction,” says Atorino, quoted by the World-Herald, “Buffett is making a statement that small-town local newspapers should survive, and will survive."
But many other commentators agree that Buffett has solid financial reasons for pushing through the sale. “I have to assume that he knows more about investing in newspapers than anybody else, and he's had decades of recognition that the business has changed and it's not what it used to be. I would trust him to have made a really good deal,” says Berkshire shareholder Wally Weitz, quoted in the World-Herald article. Atorino also adds that, considering Berkshire Hathaway has decided not to purchase the Tampa Tribune as part of this deal “this is a clean group of papers that are making money and in pretty good shape.”
Media analyst Ken Doctor describes the deal as a “three-cushion billiards approach.” He notes that, as a result of the deal, Buffett’s company will earn 10.5% interest on the money that it has loaned to Media General, it will gain access to just under 20% of Media General’s outstanding shares, thus allowing it to potentially profit from the company’s more stable broadcasting business, and it will gain access to all the newspapers’ valuable real estate.