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Warren Buffett said he is buying The Omaha World-Herald Co. in a $200 million transaction because well-run newspapers have a future and because Omaha is a “vibrant” community.
He said his hometown paper has been true to its role as a primary source of information for the community.
“I wouldn't do this if I thought this was doomed to some sort of extinction,” said Buffett, chairman and CEO of Berkshire Hathaway, whose surprise appearance at a meeting of the company's employee-shareholders at the Holland Performing Arts Center drew a standing ovation. The World-Herald is the last major employee-owned newspaper in the country.
The sale, subject to a Dec. 20 vote by the 275 employees and retirees who own World-Herald stock, would continue local ownership of the newspaper, which the late Peter Kiewit preserved after buying the newspaper in 1962 from its founding family to prevent a sale to an out-of-town chain.
“It's an important institution here,” Buffett said. If Kiewit knew the current situation, he said, “This would be his solution. He wanted an independent, locally owned and vibrant newspaper, forever, in Omaha, Nebraska. We would be the logical consequence.''
From a business standpoint, Buffett said, “It is a reasonable investment. There is no question it is affected by the fact that I am extremely bullish on Omaha, Nebraska. We live in a vibrant economy here. . . . It's prosperous, and it's a community that has a sense of community. I think that's important to a newspaper.''
He said the management of The World-Herald, led by publisher, president and CEO Terry Kroeger, would remain in place, and he would not get involved in the newspaper's editorial decision-making or news coverage. “I'm not in that game.''
“The World-Herald delivers solid profits and is one of the best-run newspapers in America, and we are pleased to have Terry Kroeger and his team join Berkshire Hathaway,” Buffett said.
For years, Buffett has discussed the challenges faced by newspapers with the rise of the Internet, saying newspapers used to earn high profits as virtually the only information source available. Now, he said, Wednesday, newspapers must figure out how to charge for information they post online and control their costs.
Becoming part of Berkshire would make the newspaper company's local ownership as permanent as possible, said Buffett, 81, because Berkshire's directors are charged with preserving the company's “culture” after he is gone.
Berkshire would pay about $150 million cash for the company, which includes its 126-year-old flagship Omaha World-Herald newspaper and daily newspapers in Kearney, Grand Island, York, North Platte and Scottsbluff, Neb.; the Council Bluffs Nonpareil; and World Marketing, a direct mail company with operations in Omaha, Chicago, Dallas, Atlanta and Los Angeles.
The World-Herald's $50 million in debt would remain with the newspaper company, which would be merged into Berkshire, Buffett said. Kroeger recommended a “yes” vote on the proposal.
“Buffett's offer to purchase our company presented a unique opportunity to address our long-term capital needs and continue local ownership of The Omaha World-Herald, which is consistent with the legacy left to us by Mr. Kiewit,” Kroeger said. “As part of the Berkshire family of companies, we will be better positioned to capitalize on our strengths and pursue opportunities as the newspaper industry continues to evolve.”
Kroeger said the company took steps in 2008 and 2009 to resolve short-term financial problems that arose during the recession but had been wrestling with long-term financial issues.
Kroeger said it was clear that the company would need a significant amount of capital sometime in the future because its shareholders are mainly older and selling stock more rapidly than younger employees are buying.
The company is about 20 percent owned by the Peter Kiewit Foundation, which also is in favor of the transaction, said Michael Gallagher, a Phoenix attorney who is represents the Kiewit Foundation on the World-Herald's board of directors. He said the foundation's share of the sale, about $30 million, would go for “more good works.”
World-Herald Chairman John Gottschalk called the proposed sale “a milestone” that would put the newspaper company “into the hands of a corporation deeply rooted in Omaha.” Buffett formerly served on the newspaper's board of directors, Gottschalk noted, and Berkshire has owned the Buffalo (N.Y,) News for decades.
“He understands Omaha,” Gottschalk said. “He understands the great journalistic legacy of The Omaha World-Herald.”
Buffett said he has turned down offers to buy many other newspapers in the past decade but was willing to buy the Omaha newspaper because he is familiar with it and because it has had “a good financial performance.”
“It's not a crazy price. It certainly is not a bargain price,” he said. “I was willing to pay more than I would have for some papers I don't feel have as good of a future.''
He said that the newspaper industry has obviously been going through many challenges in the digital age. But he said the Buffalo News has dealt with its problems and is profitable, as is the World-Herald.
“I think newspapers . . . have a decent future. It won't be like the past. But there are still a lot of things newspapers can do better than any other media. They not only can be sustained, but are important.''
At the meeting, Buffett talked about his family's love for newspapers, including his mother's work at a newspaper in West Point, Neb., and his parents' meeting at the Daily Nebraskan student newspaper at the University of Nebraska in Lincoln.
He said the $5,000 he earned delivering newspapers as a child was the basis of the investments that grew into Berkshire Hathaway, and said he continues to read five daily newspapers a day, including The World-Herald.
"I'm not comfortable without an honest-to-God newspaper in my hand,” he said.
Berkshire would be the fifth owner of The World-Herald, founded by Gilbert Hitchcock founded it in 1885. After Hitchcock died in 1934, members of the Hitchcock family owned and managed the newspaper for the next 28 years. Kiewit's employee ownership plan began after he died in 1979.
Three publishers have guided the paper during that time: Harold Andersen (1975-1989), Gottschalk (1989-2007) and Kroeger (2008 to present).
Berkshire already has ownership of three other widely known businesses in Omaha, Buffett's hometown. Berkshire has majority ownership of the Nebraska Furniture Mart and owns Borsheim's Jewelry and CBSHome Real Estate.
The World-Herald is the 49th largest newspaper in the country as measured by the daily distribution of the printed newspaper. It also is in the top 10 newspapers in the country in terms of the percentage of households in its market that subscribe. Omaha.com, The World-Herald's digital outlet, is the dominant Omaha news site in terms of both visitors and page views.