Read more: Buffett tells The World-Herald that the purchased papers are "keepers"
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Warren Buffett made good Thursday on his promise to buy more newspapers, agreeing to buy 63 daily and weekly newspapers in the Southeast for $142 million from financially troubled Media General Inc. of Richmond, Va.
And Buffett said Thursday he may buy more newspapers. “Any time we can add properties we like, to management we like, at a price we like, we're ready to go.”
The newspapers, in Virginia, North Carolina, South Carolina, Alabama and Florida, would be combined with the Omaha World-Herald Co. into a new Berkshire Hathaway Inc. division called BH Media Group. They would be managed by World Media Enterprises, a new sister company of The World-Herald.
“In towns and cities where there is a strong sense of community, there is no more important institution than the local paper,” said Buffett, chairman and CEO of Berkshire, in a press release. “The many locales served by the newspapers we are acquiring fall firmly in this mold, and we are delighted they have found a permanent home with Berkshire Hathaway.”
The purchase includes the newspapers' web sites, printing operations and related businesses. Berkshire would make a debt-refinancing loan to Media General, which would keep its TV stations and sell separately the Tampa (Fla.) Tribune, its largest newspaper.
The sale would close June 25, subject to Federal Trade Commission and anti-trust reviews.
The largest newspapers in the acquired group are the Richmond Times-Dispatch, which sells about 115,000 copies on weekdays and 165,000 on Sundays, and the Winston-Salem (N.C.) Journal, which sells about 58,000 copies daily and 76,000 on Sundays.
Altogether, the 17 daily newspapers sell about 400,000 copies on weekdays. World-Herald Co. dailies' weekday circulation is about 200,000.
Media General's total weekday circulation makes it the nation's 16th largest newspaper company, according to the latest ranking, a 2011 report by the Pew Research Center. The combined circulations of the papers Berkshire is buying with The Omaha World-Herald Co.'s dailies would make BH Media the 13th largest chain.
The Buffalo (N.Y.) News, owned by Berkshire since 1977, remains a separate part of Berkshire, which also owns about 20 percent of the Washington Post.
Terry Kroeger, president and CEO of The World-Herald, is president of BH Media Group. Douglas Hiemstra, vice president of operations of The World-Herald, is president of World Media Enterprises.
“These newspapers are great institutions and powerful brands in their respective markets,” Kroeger said in the press release. “We are honored to have the opportunity to work with our new colleagues as we continue to produce top-notch news and advertising products in both print and digital platforms.”
Berkshire said the newspapers' transition to World Media Enterprise management would take place over several months.
At the time he acquired the World-Herald, Buffett said he would not interfere with its editorial or news policies and he expected the newspaper company to continue doing its best work. He has a history of acquiring companies with good managers in place and letting them run their businesses with minimal control from his office.
Berkshire owns about 80 businesses with more than 300,000 employees, and Buffett has said he and his 20-person office rely on each company's managers to conduct their businesses as if they were the owners.
Buffett has often said that newspapers were an excellent business when the owner of a newspaper had “the only megaphone in town.” In 1992, before digital media arose, he said newspapers are “enormously valuable.”
But in 2009 he said, “For most newspapers in the United States, we would not buy them at any price. They have the possibility of going to just unending losses.”
Then, when Berkshire bought The World-Herald for $200 million in December, he said, “I saw good financial performance,” plus the benefits of a good local economy in Omaha and a desire to continue local control of the community's newspaper.
“I think newspapers . . . have a decent future,” he said at the time. “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 Berkshire's shareholders meeting May 5, Buffett was asked by a shareholder whether The World-Herald purchase involved “self-indulgence,” given the fact that Buffett loves newspapers and reads several each day.
Buffett replied that while newspapers are no longer the only source for some types of news, such as stock prices and major league sports scores, they still deliver news and advertising information that people can't find elsewhere. He said he wanted to buy more newspapers in cities where people are interested in their communities.
“The World-Herald tells me every day things that I can't find out elsewhere,” Buffett said at the meeting. “Most of those items, overwhelmingly, are local. They do tell me a lot about my city, about local sports, my neighbors, about things I want to know.”
He said newspapers need to resolve problems with high production and delivery costs and the practice of making their products available for free over the Internet.
In Thursday's announcement, Marshall Morton, president and CEO of Media General, said the newspaper group sale “represents a monumental change,” and called BH Media “a company with a strong commitment to local news leadership and community engagement.” He said the sale “accelerates the timing of our strategy to focus on our broadcast television business” and related businesses.
In a Dec. 25 filing with the Securities and Exchange Commission, Media General officials said the company was at risk of defaulting on its substantial indebtedness and might have to sell assets.
In January, news accounts said that if Media General couldn't modify the agreements, it was at risk of bankruptcy. “It's a threat that some analysts have been discussing quietly since last year,” TVNewsCheck reported.
In February, the company said it had received “several” inquiries about buying its newspapers but did not name potential buyers.
At Media General's 2012 annual meeting in April, Morton said the company was considering selling its newspapers. He said print revenue had fallen by half since its peak of $600 million in 2006, although “at the same time, there remains a loyal audience and advertiser base for the printed product.”
The company's stock price, more than $35 a share in 2007, dropped as low as $1.14 in October before recovering. Wednesday, the price closed at $3.14 per share.
After the announcement, the stock opened at a price 55 percent higher amid a high volume of trading.
As part of the newspaper group purchase, Berkshire would loan $400 million and set up a $45 million line of credit to refinance Media General's debt. Berkshire would receive warrants entitling it to buy 4.6 million shares of Media General stock, 19.9 percent of the existing shares.
Once the financing is completed, Berkshire would have the option to nominate a person to Media General's board of directors.
Morton said Berkshire's loan, which carries 10.5 percent initial interest, “addresses Media General's long-term capital needs and provides the company with significant financial and operating flexibility.”
Media General said it would retain $25 million in cash and use the rest of the sale proceeds to pay down debt.
Media General, with 18 network-affiliated stations, said Thursday it expects strong TV advertising revenue this year from the political campaigns, the Olympics and the Super Bowl. It said its television stations accounted for 77 percent of its cash flow in 2011 and 87 percent in the first quarter of this year.
Media General originated as a newspaper company in Richmond in 1850 and later diversified into TV, selling stock as a public company in 1969. It has about 4,200 employees, having cut its workforce by nearly 35 percent since 2007.
Its presses print more than 150 publications for outside customers, including some markets for the Wall Street Journal, the Washington Post and the New York Times. It has launched niche products, such as “Gotcha!,” which reports police incidents with mug shots of those arrested. And it has centralized some of its newspaper operations, producing the same national news pages for three of its daily newspapers at its Richmond office.