

Buffett to buy 63 newspapers - danso
http://www.omaha.com/article/20120517/NEWS01/120519629#buffett-to-buy-63-newspapers

======
ankeshk
This seems like a pretty good deal if you go beyond the headlines of Berkshire
investing in a declining industry.

1\. All the newspapers Berkshire Hathway is buying are modestly profitable
according to Poynter Institute. They didn't buy the Tampa Tribune newspaper
which is struggling.

2\. Berkshire is also loaning $400 million to Media General at 10.5% interest.
And providing a $45 million credit line. The interest on that loan will go a
long way towards paying for the newspapers.

3\. And on top of this, Berkshire is getting stock warrants equivalent to
almost 20% of Media General. Media Generals stock prices are already up by
33%.

In essence, Berkshire has put in $600 million which will earn them about
$60-80 million per year (from newspaper revenue and interest on the loan.)
Gives them 20% of a media company with a market cap of $90 million and room to
rise higher. And leaves with a $400 million loan which has to be paid back to
them eventually.

This is a bloody genius deal.

~~~
netcan
Obviously the devil's in the details. But it seems more like fair company at a
great price than great company at a fair price. The latter is what Berkshire
is known for.

If it's the former type of a deal it's interesting: Maybe prices are so good
he couldn't resist. Maybe these newspapers do represent a great "company."

~~~
_delirium
Berkshire has been doing quite a bit of the first category too lately. They
have such a gigantic cash pile that they can operate as kind of a private-
sector bailout fund, bailing out companies that, with Berkshire financing,
could survive past a rough spot, and extracting excellent terms as a result
(because the companies are often in a short-term position that gives them
little room to refuse the offer). For example, their 2008 investment-with-
some-loan-characteristics to Goldman Sachs in the middle of the financial
crisis had a similar interest/equity structure, where they were granted
special 10%-dividend-paying shares.

~~~
bdunbar
_they can operate as kind of a private-sector bailout fund,_

Or, as we used to call it: Buy low, sell high.

~~~
_delirium
That's not really what they're doing, though; it's buying on special,
negotiated terms, with bond-style percentage-of-investment payouts in return.

------
markerdmann
This page has some interesting commentary on the purchase:

[http://www.businessweek.com/articles/2012-05-17/why-
warren-b...](http://www.businessweek.com/articles/2012-05-17/why-warren-
buffett-really-likes-newspapers)

"As recently as six years ago, newspaper companies sold for more than 9 times
Ebitda (earnings before interest, taxes, depreciation, and amortization). Bank
of America Merrill Lynch’s Stephen Weiss writes today that Buffett’s company
paid around 4 times Ebitda for the Media General assets."

I suppose you could say he's buying a very sick golden goose. He may not be
able to save the goose, but at 4 times Ebitda he only needs to collect a few
last eggs to get his money back. And who knows... maybe the goose can be
saved.

~~~
pjin
I'm not sure economics is the right angle. This is an (re)election year, and
these newspapers are all in "Virginia, North Carolina, South Carolina, Alabama
and Florida." Think what you want from that.

~~~
patdennis
Eh, that's only two and a half swing states (Actually, NC is probably less
than a half swing state). If he was trying to influence the election, it'd be
more efficient to fund a super pac. Priorities USA would be the obvious
choice.

Buffett is a hands off manager, and if he started tinkering with editorial
policies, word would get around. He's no Murdoch.

------
richardburton
The greatest thing about Buffett is his willingness to change his mind.

He started out by investing in "cigar butt" companies that were often valued
at huge discount to their book value. Then he changed: bought lots of Coke
stock.

He said he was not able to predict the outcomes of technology companies and
therefore was very unlikely to invest in the sector. Then he changed: bought
lots of IBM stock.

He has stated in a number of his letters to Berkshire Hathaway shareholders
that the newspaper business has lost its "moat", its competitive advantage.
Now he's changed: buying a huge number of local media properties at an
incredible discount.

Buffett's adaptability, patience, and willingness to change tack is what makes
Berkshire Hathaway such a powerhouse. As his partner Charlie Munger said of
their performance over the last 40 years: "if you stripped out the top 20 bets
we've made then our performance is a joke". They've made big bets on lots of
distressed assets. This bet is relatively tiny compared to Berkshire's size.
They are look for more "elephants" like the Burlington North railway.

~~~
adventureful
He didn't change his mind about being unable to predict the outcomes of
technology companies at all. In fact, he reinforced that very statement in
discussing having purchased IBM.

He bought IBM because, in his own words, he no longer considers it an
unpredictable technology company (subject to changing trends), but rather a
company that services infrastructure, like a plumber. He sees an IBM that is
no longer highly subject to unexpected shifts in technology. They're more like
Accenture than the IBM of 1980 at this point.

He didn't change, IBM did. It's why you won't see him doing very many more
tech investments. Intel is a far more curious investment on his part than IBM,
but it was a piddling investment compared to IBM.

He was right about newspapers, and he's breaking his own rules. He'll buy
almost anything at the right price, and that's the case here, he's buying a
cigar butt.

The greatest thing about Buffett is his unwillingness to change. It's his
dedication to not changing his principles that has kept him from blowing up as
most do over such a long duration. Instead he tries to follow the same strict
capital allocation rules that work over and over and over again, and always
will.

~~~
richardburton
His principles have changed several times as I have outlined. His core
investment philosophy has not.

\- Stick to what you know. \- Price is what you pay; value is what you get. \-
Bet big. \- Focus, do not diversify.

------
djt
He is only buying local newspapers with strong local distribution.

He's betting that they will fair better in the long term as people go to the
Internet for the big stories while they buy a newspaper for all the local
news.

Good idea I think.

~~~
markerdmann
That's a great point.

Are there any startups tackling the local news problem?

~~~
brandnewlow
There is no local news problem. Local news exists to sell advertising...and
there's hundreds and hundreds of companies attacking that space.

~~~
_delirium
There is some demand for local news on the part of readers, though, which is
what causes these papers to survive (and be able to sell ads). The newspapers
aren't really producing the highest-quality output, but they retain some
readership, because some number of people want to read about what happened in
their 80,000-person town's city council meeting yesterday, what the sirens
around 3rd and Main were all about, etc., etc.

I haven't yet seen a startup tackle that aspect, of producing some kind of
local information source that people will want to read. It's at least a
demand-side problem, in that a lot of people want that information, and
current information providers are producing a fairly low-quality version of
it. Whether it's monetizable, I suppose, is another story.

~~~
brandnewlow
My anecdotal and experiential evidence says that while there are people who
want that information, it's a pretty small number so you can't exactly make
money directly from them.

And the people who look at that info have zero intent to spend money, so
advertisers have zero interest in appearing alongside it.

------
ThomPete
Although this seems like a weird move it's my guess that he is betting on at
least one of those papers being the long time survivor after a consolidation
of the market.

For $142 million he should be able to make money one way or another.

But this is of course my (very un-educated) guess.

~~~
jeffool
I think you're right. A purchase of this size is bound to be able to new a few
wins, even if it's via consolidation.

And who knows, maybe iTunes/Amazon has convinced him that "content" has a
future.

------
cafard
I wish him luck. The Washington Post has a larger market, effectively no print
competition, and still clearly has trouble. These days it feels like the old
USA Today when I pick it off the porch.

------
capex
I guess he just bought 63 news websites, with staff on ground to run them.

------
mkramlich
Could be a bad buy or a good buy. I think the good buy angles come if he can
help ensure that all those local newspapers make sure to get a web/mobile
foothold. Combine the best of both worlds: the boots on pavement and faces-in-
faces they already have, and the focus on the local communities and culture,
combined with making their content available both in newsprint AND on desktop
web and on mobile web. It'd be relatively cheap to build and operate a per-
newspaper website these days, especially at the kind of traffic levels those
newspapers would likely have. Salaries for news staff and the cost of print
operations would prob be so much higher the web/mobile parts would be just
noise in the cost structure.

~~~
brudgers
I live in a small market served by one of the papers involved. Their website
is the hub for local and state news in a way that simply doesn't compare with
a large market.

One of the changes to the newspaper business is that I can get national and
international stories from the NYT or Post at no cost and at my leisure. Big
story reporting has become commoditized.

What has value is news that I can't get anywhere else and which is likely to
effect people I know personally - like school board decisions or changes to
the speed limit on local road or the city council considering the milage rate.

e.g: [http://www2.oanow.com/news/2012/may/17/schools-working-
new-c...](http://www2.oanow.com/news/2012/may/17/schools-working-new-
calendars-ar-3812032/)

------
Tichy
So just 2,5 million $ a pop. Not sure how much a newspaper is usually worth,
but 2,5 million sounds like a steal. Even if the paper thing does not survive,
you have skilled staff and teams.

~~~
jonknee
What's a skilled news staff good for when you don't have a paper anymore? If
you can't sell their product, they are just a cost center.

~~~
Tichy
You can run a website. Surely there will still be demand for local news?
Unless you generate all reports from Twitter and Instagramm, who is going to
report on local news?

------
dennisgorelik
Why does Bill Gates participate in that newspapers buying event (see video at
the bottom of that article)?

~~~
borism
he's on the Board of Berkshire and is often thought as future Buffett
replacement as CEO.

~~~
dennisgorelik
Does Gates think about himself as future CEO of Berkshire Hathaway?

That's ... unexpected. To leave his own baby to run someone else's company...

------
dm8
Buffett is really smart guy. But this acquisition is weird. At the time when
"journalism is a dying breed" and newspaper industry failing to generate
substantial revenues due to the "Internet Tidal Wave" of past decade, why is
he buying good ol' newspaper company?

~~~
chucknthem
Buffet is the epitome of a contrarian investor. He's buying precisely because
he thinks the popular opinion about the dying newspaper industry is
exaggerated, and he can get a good deal for his money.

------
rmATinnovafy
Buffett is not above buying cigar-butt companies. Even though he moved away
from the strategy his mentor followed (Graham), he does see the value of it.

When you have a huge pile of cash, all you need is a conservative return.

------
brianbreslin
What's the long term strategy here?

~~~
aleem
I head the online strategy and development for a leading media company in
Pakistan. Some years back we were approached by IBM for their portal
solutions. Our competitors were already using IBM portal solutions at the time
and were in a leading position which gave others a compelling reason to switch
over. We didn't end up switching over but if we had, it's likely the third
major player in the market would also have capitulated to keep up. IBM would
have been in a good consulting position either way even if they got 2 out of
3.

It's very likely that the this investment and the IBM investment have a link.
It certainly makes sense from a strategic point of view and would benefit
everyone involved.

------
adventureful
Buffett should understand by now that it's bad to be getting into the buggy
business when the automobile shows up on the scene. He's obviously looking to
get one last puff out of the classic cigar butt scenario, but he lost big on
that type of gamble with Berkshire Hathaway textiles (obviously BRK is no
longer under threat of a modest bet like this putting a dent in their
company).

