Read more: Buffett tells The World-Herald that the purchased papers are "keepers"
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Warren Buffett came through with cash when the nation's biggest banks were teetering.
Now, some observers say, he's doing the same for newspapers, although Buffett maintains that his fledgling network of community newspapers — to grow by 63 dailies and weeklies next month — will be a profitable addition to Berkshire Hathaway Inc.'s businesses.
Buffett's planned purchase of Media General's newspaper chain in the Southeast sparked a new round of discussion Thursday about the value of newspapers and the financial impact the purchase would have on the giant investment company he has built over the past 50 years.
Buffett has become a national booster of the newspaper industry, which is struggling to maintain readership and profits. At the same time, Berkshire needs multibillion-dollar deals to boost its earnings, not the $142 million transaction announced Thursday.
“Berkshire's not in this as a financial transaction,” said Ed Atorino, a managing director and media analyst at the Benchmark Co. of New York City. “Buffett is making a statement that small-town local newspapers should survive, and will survive.
“This is giving them a lease on life.”
But Omaha money manager Wally Weitz, whose investment funds hold Berkshire shares, said Buffett isn't sentimental to the point of making unwise investments.
“When it comes to Media General, it's going to be all business,” Weitz said. “As a Berkshire shareholder, 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.
“Sometimes he does things and you don't figure out why until later.”
Whatever he's doing, Buffett's newspaper collection is growing. Berkshire would pay $140 million and make $445 million in loans to Media General in return for its newspapers — everything except the Tampa (Fla.) Tribune and the company's 18 network-affiliated TV stations.
“I know the dailies,” Buffett said. “They're all doing OK, to varying degrees, and I think they'll do even better when we get our people in there. They're keepers.”
Berkshire has owned the Buffalo (N.Y.) News since 1977, the days when he said newspapers were “enormously valuable” because of their near-monopoly on advertisers' dollars and readers' time. That view has evolved as digital media captured more revenue and eyeballs, but when Buffett purchased the World-Herald Co. in December he again said that some newspapers have a positive future.
He pledged to buy more, and he said Thursday that the Media General newspapers have the right ingredients. “They're in good communities,” and their readers care about their communities. “People buy papers to learn something that they don't know that they want to know.”
Buffett also stands to acquire nearly 20 percent of Media General, which is left with its most profitable assets, its TV stations.
After the sale was announced Thursday morning, investors rewarded the seller of those papers, not the buyer. Media General's stock price went up by one-third, while Berkshire's stock price dropped slightly.
Thursday's deal, due to close June 25, sparked discussion among Buffett-watchers.
Atorino, from Benchmark Co., said it's important to note that the deal does not include the Tampa Tribune, which is losing money and has no immediate chance of winning its battle against the Tampa Bay Times, owned by the not-for-profit Poynter Institute.
“After extracting the Tampa Tribune, this is a clean group of papers that are making money and in pretty good shape,” Atorino said.
Stock analyst Greggory Warren of Morningstar in Chicago said the acquisition is minor compared with Berkshire's $73.5 billion investment portfolio.
“If it was a $20 billion deal, I'd be more cautious and saying, ‘What are you doing?' But this is such a small piece,” Warren said. “If he's right, from sort of a rural perspective, if he starts winking up a lot of these local newspapers and tapping into their ability to provide local users what they're looking for, then there's probably a business there, longer term.
“Even if it doesn't work out, it's not going to impact him all that much.”
Ken Doctor, a media analyst for Outsell Inc., said people knew Buffett might buy more newspapers, but the low price was a surprise — about one-tenth of what the papers might have brought a decade ago.
Buffett was able to acquire the papers, their real estate and other assets for about the equivalent of “buying a high-end house in each of those communities,” Doctor said.
Win or lose, the financial impact won't be enough to make a difference in Berkshire's overall finances, said Paul Lountzis of Wyomissing, Pa., whose investment funds hold Berkshire stock. “But it's something he really likes, and I'm sure the economics work or he wouldn't do it.”
Russ Kaplan, an Omaha-based investment adviser, said he doesn't question Buffett's motivations for wanting to acquire them.
“He's a long-run investor, and I see newspapers in some form being with us for some time,” Kaplan said. “I think it was a wise decision.”
Although some of the newspapers might be in for changes, said Scott Thompson, the managing director of a Minneapolis-based money management firm, Berkshire is a good fit for them. “Given Buffett's knowledge and past, I think Berkshire is the best home for these newspapers. Based on his strong track record, I still have faith.”
The purchase resolves a difficult, uncertain time for Media General, said Tom Silvestri, president and publisher of the Richmond (Va.) Times-Dispatch, the largest newspaper being acquired by Berkshire.
Media General had been losing money and, in April, said its print revenue had fallen by half since its 2006 peak. The company reported that its debt problems would force it to sell its newspapers, which were the original business of the company dating back to 1850.
“We're really happy how this has ended for Media General,” said Silvestri, a 30-year employee of Media General. “It ends on a high note, so we can begin on a high note. It's sometimes hard to believe that it's worked out this well.”
Other potential buyers showed interest in the Media General newspapers, Buffett said, but that didn't lead to a bidding war, partly because Berkshire also offered to refinance Media General's debt.
“We were totally the right one,” he said. “They're all done now in terms of what they have to do. ... We came up with a solution to all of their problems, and they knew we were good for it.”
Buffett said the $142 million price for the Media General newspapers reflects the market price for the newspapers according to their circulation, which, in turn, determines advertising rates. Berkshire paid $200 million for The World-Herald chain, which has a smaller circulation than the combined Media General newspapers.
Buffett said The World-Herald price was based on a formula that the newspaper company used to determine the price of shares owned by its employees. “I wasn't going to buy it below the formula price,” a move he said might not have been “feasible.”
Even though The World-Herald price probably was higher than the market price, he said, “the difference wasn't that big.”
Buffett, who is attending a Microsoft summit meeting in Redmond, Wash., said by phone that he has no other newspaper purchases pending but that he's open to others.
“There aren't a lot of buyers in the field whose checks will clear. ... Any time we can add properties we like, to management we like, at a price we like, we're ready to go.”
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