Warren Buffett is tossing his bet on the U.S. newspaper industry. On first read, it looks like a $200 million loss for his Berkshire Hathaway conglomerate. But the fine print suggests Buffett's exit from a nine-year foray into the print news business — which included the purchase of the Buffalo News in New York, his corporate hometown's Omaha World-Herald in Nebraska and 29 other small and mid-sized papers around the country — could ultimately deliver for the famed investor.
Lee Enterprises, which is buying the papers, is borrowing around $575 million from Buffett's insurance conglomerate Berkshire Hathaway at a 9% interest rate to finance the purchase. The loan doesn't mature until 2045. That means Lee will pay Berkshire an additional $52 million a year for the life of the loan, on top of the $140 million in cash it is paying upfront to buy the papers.
Berkshire is also holding onto any local real estate it obtained as it was buying up newspapers and leasing those properties back to Lee, for an additional $8 million a year for 10 years.
Shares of Lee, which already owns 50 papers in the U.S., rose nearly 80%, to $2.22, on news of the acquisition, while Berkshire's stock price budged less than 1%, to about $338,700 per share.
Buffett, for his part, is likely emerging from histo make money on the fading newspaper business with a small profit at best.
It was never a huge bet for Buffett. Berkshire, which has annual revenue of roughly $250 billion, paid nearly $345 million for the media acquisitions between 2011 and 2013, which included mid-sized papers like the World-Herald but also dozens of smaller outlets like the Jackson County Floridan.
Still, the interest of a billionaire like Buffett, with his longstanding reputation as one of the smartest investors around, gave a lift to the newspaper business, if just an emotional boost.
Buffett often said that while the internet was hurting the news business in general, local papers would retain their readerships and be viable businesses for a long time. He had a personal tie, too: His first job was as a newspaper delivery boy. Berkshire even set up a newspaper-tossing contest at its famed annual investor meeting, with Buffett throwing the first paper to kick off the event.
Nonetheless, Buffett's bet on the news biz hasn't worked out as first advertised. At the time of the acquisitions, Buffett said his media group as a whole generated $350 million in revenue and was profitable, though not very. By 2018, Buffett said he had been surprised by the continued decline in local newspapers and that Berkshire had never come up with a sound strategy to turn things around. Nine years later, Buffett's media group's annual revenue is up, but only slightly, to $373 million, and was generating a slim profit of $15 million.
In announcing the acquisition on Wednesday, Buffett said he was confident that Lee is well positioned to manage the newspapers "though the industry's challenges" and that Lee is "committed to serving the vital role of high-quality local news."
Buffett added "however delivered" — a tip of the hat, perhaps, to the inevitable switch to digital news that the Oracle of Omaha seems to have missed years ago.