As the longtime publisher of the Buffalo News, Stan Lipsey knows a little about what it's like to run a newspaper with Warren Buffett as your boss.
With Buffett's hands-off approach to his Berkshire Hathaway subsidiaries' day-to-day affairs, his affection for newspapers and his belief in their importance to the vitality of a community, the Omaha World-Herald couldn't be in better hands, Lipsey said.
"He's a dream owner,'' Lipsey, an Omaha native, said Wednesday. "He loves newspapers, and he understands journalism and its importance in our democracy.''
Buffett is buying his hometown newspaper in a $200 million transaction, saying that he's confident that there is a future in a vibrant city like Omaha for a well-run newspaper that has served its community well.
"It's an important institution here,'' Buffett said in an interview Wednesday after a surprise appearance before the employee-owned newspaper's shareholders, who gave him a standing ovation.
And as an investment, Buffett said, The World-Herald is a reasonable bet — one for which he will use a tiny portion of the $35 billion in cash he is looking to invest on behalf of Berkshire's shareholders. He said the newspaper has been delivering solid profits — and should continue to do so in the future.
"I wouldn't do this if I thought this was doomed to some sort of extinction," he said. He told employee-shareholders Wednesday that becoming part of Berkshire Hathaway would make the newspaper company's local ownership as permanent as possible.
Buffett's purchase of The World-Herald continues a local ownership legacy preserved by the late Peter Kiewit when he bought the paper in 1962 from its founding family to prevent its sale to an-out-of-town chain. In turn, Kiewit set up an employee ownership plan before his death in 1979. The World-Herald is the last major employee-owned newspaper in the country.
But despite the paper's profit margins, The World-Herald also faced long-term financial challenges directly tied to its employee-owned structure. Longtime employees who have accumulated significant shares of stock are approaching retirement, and fewer younger workers have been buying into the company.
That prompted World-Herald Publisher, CEO and President Terry Kroeger and the newspaper's board to explore the possibility of bringing in outside capital.
After Buffett learned of the paper's dilemma, he spent a day studying the newspaper's financial returns since 2008 before extending his cash offer.
If Kiewit knew the current situation, Buffett 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.''
The purchase is still subject to approval Dec. 20 by the newspaper's 275 stockholders, with Kroeger and the paper's managers recommending a yes vote. The sale also appeared to be well-received in the greater community of Omaha and the state.
The World-Herald and its subsidiary newspapers in Council Bluffs and across Nebraska will join a Berkshire newspaper portfolio that already includes being the largest shareholder of the Washington Post and the ownership of the Buffalo News. Anyone who has looked at the history of those newspapers should know that Buffett won't try to micromanage the paper or influence its coverage, tone or editorial positions, said Gary Kebbel, dean of the University of Nebraska-Lincoln's College of Journalism and Mass Communication.
"Has he interfered in those newsrooms? The answer is an unequivocal no,'' Kebbel said.
The preservation of local ownership was also seen as critical. "The Omaha World-Herald has played a big part in this city's history,'' said Omaha Mayor Jim Suttle. "I am very pleased to see it will remain locally owned.''
David Brown, president of the Greater Omaha Chamber of Commerce, said he was proud to see Berkshire add to its stable of Omaha companies, which already includes the Nebraska Furniture Mart, Borsheims Fine Jewelry and CBSHome Real Estate.
"This purchase by Berkshire represents the marriage of two terrific companies,'' Brown said. "We are sure that this new relationship will result in positive results for both companies and the community.''
The private Peter Kiewit Foundation, which upon Kiewit's death had retained a 20 percent stake in the World-Herald to further assure that ownership remained local, also supports the sale, said Rick Russell, the CEO of Millard Lumber and the foundation's chairman.
"This is a great win for everybody — keeping local ownership and still having capital available for the paper to be able to deliver the quality of news that it has over its history,'' he said. "We think Mr. Kiewit would be very pleased with that.''
Buffett told the employee stockholders that Kroeger and the management of The World-Herald would stay in place when it became a Berkshire operating unit by the end of this year. On whether he would get involved in newspaper decision-making, he said, "I'm not in that game.''
The purchase probably raised some eyebrows nationally, given Buffett's past statements about the newspaper industry's troubles in the digital age. For years, Buffett has discussed the challenges posed by the rise of the Internet, saying newspapers would no longer earn the high profits they once garnered as virtually the only information sources available. He said Wednesday that he has turned down offers to buy other newspapers.
But Buffett defended The World-Herald purchase as a sound investment for Berkshire. He said The World-Herald and other newspapers, particularly those not in big-city markets, have a decent future but must figure out how to derive more revenue from the information they post online and control their costs.
"It won't be like the past,'' he said of their profitability. "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.''
Buffett said the purchase was also a reflection of the fact that he is "bullish on Omaha, Nebraska.''
"We live in a vibrant economy here,'' he said. "It's prosperous, and it's a community that has a sense of community. I think that's important to a newspaper.''
Donna Dudley, an associate professor of finance at UNL, noted that the investment fits the profile of Buffett, who likes companies he is familiar with and understands.
The paper also has "a durable competitive advantage,'' she said, as one of the top 10 papers in the country in terms of percentage of subscribers in its market and with the Omaha.com website that is the dominant player in the Omaha digital market.
"While nationally the newspaper industry faces substantial challenges, The World-Herald has a sustainable niche as the dominant provider of local and regional news in Nebraska,'' she said.
Berkshire would pay about $150 million cash for the company, which includes its 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 sale price was based on the "book value'' of the newspaper properties.
"It's not a crazy price. It certainly is not a bargain price," Buffett said. "I was willing to pay more than I would have for some papers I don't feel have as good of a future.''
The World-Herald's $50 million in debt, much of it tied to its construction of a new press facility a decade ago, would remain with the newspaper company, which would be merged into Berkshire, Buffett said.
When the national economy crashed, Kroeger said, The World-Herald took steps in 2008 and 2009 to resolve short-term financial problems. But the long-term concerns created by the stock program remained. With that out of the way, the newspaper can continue to adapt to an increasingly digital future, he 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," he said.
The 81-year-old Buffett, who once owned the weekly Omaha Sun newspapers, said local ownership was assured because Berkshire's directors are charged with preserving the company's "culture" after he is gone.
The Peter Kiewit Foundation, which would receive about $30 million from the paper's sale, will use the money for "more good works'' in the community, said Michael Gallagher, a Phoenix attorney who represents the Kiewit Foundation on The World-Herald's board of directors.
Berkshire's value is about $160 billion. Besides investments, Berkshire has about 75 operating companies, including insurance, furniture, utility, jewelry and corporate jet companies.
Berkshire would be the fifth owner of The World-Herald, founded by Gilbert Hitchcock in 1885. After Hitchcock died in 1934, members of the Hitchcock family owned and managed the newspaper for the next 28 years.
The World-Herald is the 49th-largest newspaper in the country as measured by the daily distribution of the printed newspaper. Three publishers have guided the paper during the time of employee ownership: Harold Andersen (1975-1989), Gottschalk (1989-2007) and Kroeger (2008 to present).
At his meeting with the newspaper's shareholders, 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 NU.
He said that the $5,000 he earned delivering newspapers as a child was the basis of the investments that grew into Berkshire Hathaway and that he continues to read five daily newspapers a day, including The World-Herald.
"I'm not comfortable," he said, "without an honest-to-God newspaper in my hand."
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