Thursday, May 17, 2012

Berkshire Bets Again on Newspapers With Media General (NYSE: MEG) Deal

Berkshire Bets Again on Newspapers With Media General (NYSE: MEG) DealNorthern, WI 5/17/12 (StreetBeat) -- Berkshire Hathaway’s latest deal may have investors wondering: Does Warren E. Buffett want to be a media mogul?

Media General (NYSE: MEG) said on Thursday that it has sold nearly all of its 63 newspaper properties, excluding The Tampa Tribune, to the conglomerate for $142 million in cash.

Berkshire is also providing a $400 million loan and a $45 million line of credit. In exchange, it is getting warrants that are convertible to about 19.9 percent of Media General’s outstanding shares. Berkshire is also getting a seat on the media company’s board.

Shares in Media General skyrocketed 48 percent in early morning trading on Thursday, to $4.50.

It is the second newspaper deal that the Omaha-based giant has struck in the last six months. Last November, Mr. Buffett struck a deal to buy The Omaha World-Herald Company, the publisher of his hometown paper, for a reported $200 million.

Berkshire will fold its new titles, including daily and weekly publications in Virginia, North Carolina, South Carolina and Alabama, into its BH Media Group. The Richmond Times-Dispatch and The Winston-Salem Journal are among the papers being sold.

“In towns and cities where there is a strong sense of community, there is no more important institution than the local paper,” Mr. Buffett said in a statement. “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.”

Mr. Buffett had hinted of future newspaper deals at his company’s annual shareholders convention earlier this month, telling investors, “We may buy more.”

The billionaire has long reminisced about being a paper boy in his youth — a newspaper tossing competition featuring both himself and his friend Bill Gates was one of the highlights of the investor meeting — and waxes nostalgic about the decline of newsprint.

And among Berkshire’s older holdings is The Buffalo News of Buffalo, N.Y. and a stake in The Washington Post Company.

Mr. Buffett said at the annual meeting that one of the biggest challenges facing the industry is how to convince customers to pay for news content online, when companies previously gave away the information for free.

“I don’t know of any business plan that has sustained itself that charges in one version and offers the same version free to people,” he said.

But Mr. Buffett also argued that local newspapers can still serve as the hub of their communities. While he won’t learn anything new about Afghanistan from The Omaha World-Herald, he can find out what’s going on in his own backyard.

At the same time, Thursday’s deal will give Mr. Buffett exposure to Media General itself, which is intent on transforming itself into a broadcast and digital media company. Berkshire’s financing — bearing an expensive 10.5 percent initial interest rate — will be used to repay some of Media General’s existing debt.

“We are extremely pleased to enter into a new financing partnership with the highly respected Berkshire Hathaway organization,” Marshall N. Morton, Media General’s chief executive, said in a statement. “Our new credit agreement addresses Media General’s long- term capital needs and provides the company with significant financial and operating flexibility.”

Media General was advised by the Peter J. Solomon Company, while JPMorgan Chase (NYSE: JPM) arranged the financing.

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