Warren Buffett, often billed as the world’s most famous investor, last week bought 63 local US newspapers for $142m (£90m).
This acquisition, by Buffett’s Berkshire Hathaway group, has been trumpeted as illustrating some kind of counter-intuitive faith in the future of newsprint.
But one of America’s best media commentators, Jack Shafer, isn’t buying that line. Forget any romantic notions, he writes, Buffett “buys when he sees value that others don’t.”
He backs this up with a lengthy analysis of the reason for Buffett’s previous forays into newspapers. In a word, profit.
Shafer reminds us that as recently as 2009, Buffett was bad-mouthing newspapers, saying that “they have the possibility of nearly unending losses.”
Yet he bought the Omaha World-Herald for $200m in November. And earlier this month he told investors he thought there was a future for community newspapers, adding: “I think the economics will be ok.”
Shafer is not entirely baffled by Buffett’s change of mind, taking into account the Sage of Omaha’s financial acumen. He writes:
“The Omaha deal looks like equal parts home town boosterism and faith that the properties retain some franchise cachet…
The Media General deal is slightly harder to decode… most of the towns where Buffett is now the press lord are backwaters… These small dailies and weeklies still retain franchise status because they cover local issues nobody else does, and they make money.
It’s worth noting that Buffett did not purchase Media General’s Tampa Tribune, an unprofitable paper in competition with the Tampa Bay Times… with no franchise value on the horizon.”
He cites media analyst Ken Doctor, who regards the Media General deal as “more a feat of financial engineering than a newspaper deal” because it includes a $400m loan and a $45m line of credit at 10.5% interest in exchange for warrants that would give Berkshire Hathaway almost 20% of Media General.
And Andrew Edgecliffe-Johnson of the Financial Times points out that the warrants obtained by the “well-meaning billionaire” are worth $19.5m.
So, once Media General dumps the Tampa Tribune, the company will essentially be a profitable TV station owner, a business that Buffett knows and likes. Then there is the valuable newspaper real estate too.
Shafer concludes: “Buffett’s recent newspaper acquisitions don’t indicate the industry has returned to health. But if he starts selling, you’ll know that it’s dead.”
Source: Shafer’s Reuters blog
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