Berkshire to buy 63 newspapers as Buffett expands media play

May 17, 2012 05:04 AM

May 17 (Bloomberg) -- Berkshire Hathaway Inc. agreed to pay $142 million for Media General Inc.’s newspapers including the Richmond Times-Dispatch as Warren Buffett bets community-focused publications will weather an advertising slump.

Berkshire will also provide Media General a $400 million term loan with an interest rate of 10.5 percent, the Richmond, Virginia-based newspaper company said today in a statement. The deal includes all of the company’s newspapers except for the Tampa group, according to the statement.

Berkshire is expanding in newspapers after purchasing Buffett’s hometown paper, the Omaha World-Herald Co., last year. The company is also the largest holder of Washington Post Co. and owns the Buffalo News of New York. Buffett, Berkshire’s chairman and chief executive officer, is expanding his holdings in the industry after telling shareholders in 2009 that papers have “potential for unending losses” and that he wouldn’t buy most of them “at any price.”

“I think there is a future for newspapers that exist in an area where there’s a sense of community,” Buffett said at Berkshire’s annual meeting in Omaha, Nebraska, on May 5.

Berkshire will also get warrants for about 4.6 million Class A shares representing 19.9 percent of Media General and the option to nominate a board member, according to the statement.

‘One Puff Left’

The deal includes 63 daily and weekly newspapers in Virginia, North Carolina, South Carolina and Alabama and is expected to be completed on June 25, Media General said in the statement. The company’s properties include the Winston-Salem Journal in North Carolina and the Dothan Eagle in Alabama. Berkshire will also provide the company with a $45 million revolving credit line.

The sale allows Media General to focus on its television business, according to the the company. The firm’s shares fell more than 90 percent through yesterday since trading above $72 in April 2004. Media General jumped 45 percent to $4.55 at 9:35 a.m. in New York, the biggest intraday gain since July 2009. Berkshire’s shares were little changed.

The newspaper industry has suffered advertising declines as marketers shift budgets toward digital media. New York Times Co. reported an 8.1 percent drop in ad revenue in the quarter ending in March and Gannett Co., publisher of 82 daily newspapers including USA Today, saw an 8.4 percent drop in ad sales for the same period.

“I have a hard time seeing the long-term value of print media,” Meyer Shields, an analyst at Stifel Nicolaus & Co. who covers Berkshire, wrote in an e-mail.“There may be one ‘puff’ left, but to me, newspapers are the antithesis” of companies with a competitive advantage.

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