Why Warren Buffett Selling His Newspapers Is Such A Big Deal

Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK-A)(NYSE: BRK-B) is giving up its newspapers, including Buffett's hometown Omaha World-Herald, selling to a national chain Buffett says he hopes can weather the industry storm, but further heralding the industry's ongoing troubles amid a changing media landscape.

What Happened

Newspaper chain Lee Enterprises, Incorporated LEE and Berkshire Hathaway announced that Lee will buy the publications owned by Berkshire Hathaway's BH Media Group, and a separately held paper, The Buffalo News, for $140 million in cash.

The massive purchase nearly doubles Lee's audience, adding 31 daily newspapers to its stable, including, in addition to the papers in Omaha and Buffalo, The Press of Atlantic City, The Tulsa World, The Richmond Times-Dispatch in Virginia, and several smaller papers.

Lee's stock was up more than 80% on the news.

Why It Matters

While divesting from the troubled industry, Buffett said in a statement he hoped the move would help maintain quality local news - though with a hint that its future might not be in print, but "however delivered."

"We had zero interest in selling the group to anyone else for one simple reason: We believe that Lee is best positioned to manage through the industry’s challenges," Buffett said. "No organization is more committed to serving the vital role of high-quality local news, however delivered, as Lee."

The news that Buffett is giving up on owning newspapers is just the latest blow for an industry beset for nearly two decades by gloom and doom as newspapers have tried to figure out how to weather the shift to digital, and have cut payrolls and expenses immensely. The cutting has helped the bottom line in the short term in some cases, but has led many observers to say the axed staffs haven't been able to produce a product that can make the print papers attractive to readers or advertisers in numbers needed over the long term.

Axios noted Buffett has long been a big backer of newspapers - his first job was as a Washington Post paper carrier.

"And he has long been a vocal supporter of local news," Axios' Sara Fischer wrote. "The fact that he is finally giving up on the industry, which he has warned in recent years is "toast" due to terminal advertising decline, is significant and symbolic."

No Longer Believes Business Can Be Turned Around

Media consultant Ken Doctor, who writes the Newsonomics blog, told The Associated Press the sale was a "clear acknowledgment by Warren Buffett, a longtime major supporter the press, that he no longer believed the print newspaper business could be turned around.”

The Omaha World-Herald Guild, which represents union workers at the paper, criticized Buffett for choosing to sell to a chain, rather than an individual or family ownership group. Some who work in the industry, and many newspaper labor groups, see chains as likely to continue cutting staff as a first instinct.

.@WarrenBuffett had so many other paths — see Paul Huntsman in Salt Lake, Glen Taylor in Minneapolis, the Sonoma County group in NoCal. Instead, he chose the path of national-chain nonsense—Gannett/Gatehouse, Alden/DFM and, yes, Lee. Make no mistake, Lee is short for lousy. pic.twitter.com/QOrj9Nq7vk

— The OWH Guild (@owhguild) January 29, 2020

"Buffett blew it," the guild's Twitter post said.

More Details

Lee said Berkshire Hathaway would provide about $576 million in long-term financing to Lee at a 9% annual rate. The proceeds will be used to pay for the acquisition, refinance Lee’s $400 million of existing debt, and provide cash on Lee’s balance sheet.

Lee had already been managing BHMG's papers under a 2018 management agreement. As part of the agreement, Lee will enter into a 10-year lease for BHMG’s real estate.

Lee's stock jumped more than 80% and was trading at $2.30 after the announcement.

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Public domain photo via Wikimedia.