Friday, May 18, 2012

Warren Buffet makes a killer newspaper deal

Outside the newspaper business, this week's purchase by Warren Buffet of a passel of small newspapers from Media General for a paltry $142 million has gone relatively unnoticed.

In the biz, however, it's big news for several reasons. First, we like the idea that Buffet finds value in community newspapers, and that he has openly said so. Second, the deal Buffet made is the bargain of the century, or beyond. The real estate alone he acquired is probably worth more than the purchase price. Third, it's interesting that part of the deal is an agreement for Media General to borrow $400 million from Buffet's Berkshire Hathaway company for an interest rate of (gulp) 10.5 percent. This, at a time when healthy companies can borrow for less than half that rate. The deal allows Media General to pay off overdue bank loans of nearly that amount.

For Buffet, it's a win-win. He's a big newspaper fan (he delivered his hometown paper in Omaha as a kid) and understands that community newspapers have a much more sustainable business model than many metro papers. Not insignificantly, he also understands the pay wall issue.

"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.

Count to three and slap yourself on the forehead.

Buffet, of course, is not particularly sentimental when it comes to business. He is, however, a bit old-fashioned. He likes railroads, for example. Here's what he says about community newspapers:

"In towns and cities where there is a strong sense of community, there is no more important institution than the local paper. 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."

I don't know about you, but that gives me a warm, fuzzy feeling.

Meanwhile, the move takes Media General almost completely out of the newspaper business. The company has been shifting to television for years, and this pretty much completes that move.

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