Billionaire investor Warren Buffett is transitioning from an owner of newspapers to a financier.
His BH Media Group is selling its newspaper operations, including The Roanoke Times and nine other daily newspapers in Virginia, to Lee Enterprises Inc., the Davenport, Iowa-based media company that has managed those publications for the past 18 months.
The sale, announced Wednesday, is for $140 million in cash. While Buffett’s Berkshire Hathaway Inc. will no longer own newspapers, the company is providing $576 million in long-term financing to Lee Enterprises at a 9% annual rate.
The deal includes 29 other BH Media daily newspapers in 10 states as well as The Buffalo News in New York, which Berkshire Hathaway bought in 1977. It also owns 49 weekly publications and 32 other print products.
When the deal is completed, which is expected in mid-March, Lee Enterprises will own and operate 81 daily newspapers.
Lee now owns 50 daily newspapers and more than 200 weekly and specialty publications in 20 states. It has newspapers in St. Louis; Lincoln, Nebraska; Madison, Wisconsin; Davenport, Iowa; Billings, Montana; and Tucson, Arizona.
Shares in Lee Enterprises rose 66.7%, or 84 cents, to close at $2.10.
The acquisition comes as the print media industry continues to battle for readers and advertising revenue as consumers and ad dollars increasingly shift toward online media.
Buffett, Berkshire Hathaway’s chairman and chief executive officer, said in a statement Wednesday that his company has had a longstanding relationship with Lee Enterprises.
“They have delivered exceptional performance managing BH Media’s newspapers and continue to outpace the industry in digital market share and revenue,” he said.
“We had zero interest in selling the group to anyone else for one simple reason: We believe that Lee is best positioned to manage through the industry’s challenges,” Buffett said.
“No organization is more committed to serving the vital role of high-quality local news, however delivered, as Lee. I am confident that our newspapers will be in the right hands going forward.”
Buffett, who delivered papers as a teenager and is a lifelong fan of newspapers, has become more uncertain about the industry because of drops in advertising revenue.
In an interview with Yahoo Finance in April 2019, he said that most newspapers were “toast.”
The deal was portrayed in many media outlets on Wednesday as Buffett “giving up on newspapers” less than 10 years after he jumped in to buy many local publications.
Ken Doctor, a media industry analyst and commentator, said that those headlines are “a good attention-grabber, but underplays how today’s sale is just the next logical step for Buffett.”
The sale “is no surprise” given that Lee Enterprises had already been managing the newspapers for Berkshire Hathaway since July 2018, Doctor said.
“Lee Enterprises both adds scale, can act on ‘synergies’ and in one deal refinances its pesky debt,” Doctor said about the deal.
Doctor said the sale indicates that print media executives have identified mergers and acquisitions as “their best strategy to remain profitable businesses in the next several years.”
BH Media Group generated $373 million in revenue and had adjusted EBITDA of $47.4 million. The acquired properties will boost Lee Enterprises’ revenue by about 87% and its adjusted EBITDA by about 40%, the company said.
In addition to The Roanoke Times, in Virginia BH Media owns the Richmond Times-Dispatch, The Daily Progress in Charlottesville, the Bristol Herald Courier, The News & Advance in Lynchburg, the Martinsville Bulletin, the Danville Register & Bee, The Free Lance-Star in Fredericksburg, the Culpeper Star-Exponent and The News Virginian in Waynesboro.
Lee Enterprises reported a profit of $15.9 million on revenue of $509.8 million for its most recent fiscal year that ended Sept. 29, compared with a profit for 2018 of $47 million on revenue of $543.9 million. Revenue has declined each year from $648.5 million in 2015.
Executives with Lee Enterprises on Wednesday said the deal would give the company more size and scale, enable it to cut expenses and provide it with more financial flexibility.
“Lee’s focus is on delivering valuable, intensely local, original news and information,” said Mary Junck, the company’s chairman.
“Clearly the media landscape is evolving rapidly, and that evolution will continue as audiences and advertising dollars shift from print to digital, but we know that our readers will continue to demand local news and information and they will continue to look to us for it.”
As part of the deal, Berkshire Hathaway will become Lee Enterprise’s sole lender, providing about $576 million in financing to Lee at a 9% annual rate for 25 years with no performance covenants.
The proceeds will be used to pay for the acquisition and will allow Lee to refinance its existing debt of about $400 million. It also will provide cash to allow for the termination of Lee’s revolving credit facility.
Lee Enterprises said it expects to see about $5 million of interest rate savings on its refinanced debt annually.
“Having managed the BH Media properties for the past 18 months, we already have deep knowledge into their operations,” said Kevin Mowbray, Lee’s president and CEO, in a conference call with investors and analysts Wednesday.
“This transaction significantly enhances our financial profile,” Mowbray said. “It is expected to be immediately accretive to earnings and will enable us to accelerate our digital growth.”
Lee Enterprises executives said they expect to implement about $20 million to $25 million in revenue and cost synergies from combining the operations. A significant portion of that will come from cutting administrative costs.
The sale does not include the real estate properties of the newspapers. Instead, Lee Enterprises will lease 68 properties from Berkshire Hathaway, including production equipment, under a 10-year agreement initially for $8 million a year.