January 29, 2020

Lifelong newspaper lover Warren Buffett completed his exit from the business today selling the 30 dailies of his BH Media Group and The Buffalo News to Lee Enterprises for $140 million.

No surprise. Buffett told a shareholder at one of his annual meetings several years ago that he had soured on the industry. Print advertising and circulation had deteriorated much faster than he had expected, he said, from when he put together the group in 2011 and 2012.

Soon after, he dismissed BH’s CEO and contracted with Lee to manage the papers in July 2018. That appeared, and indeed turned out to be, the bridge to a sale.

It would be conjecture to predict what Lee, a publicly traded chain with 50 other dailies, will do now with the properties beyond saving on operations by consolidating. My guess would be some newsroom cuts but not necessarily deep ones. Both companies have run lean.

For Buffett, the sale marks a relatively rare misfire. He paid $145 million for the Media General papers in 2012 and had bought his hometown Omaha World-Herald for $150 million in 2011. He later acquired the Tulsa World for an undisclosed price.

On the value of the sale, Buffett took a bath. But BH is retaining the property, which it will lease to Lee — keeping a solid source of income. Plus it could sell them later as real estate values appreciate.

A separate Berkshire subsidiary is financing the deal (that was also an element of the Media General purchase). That will generate substantial interest income for BH.

In a press release, Buffett commented that Lee was an ideal next manager of the properties and that he did not consider selling to anyone else.

Buffett bought The Buffalo News in 1977, during his long tenure on The Washington Post board. Family owners shopped the paper to The Post. They passed, but Buffett then bought it for himself.

Buffett’s father was a congressman. Legend has it that he used the proceeds from an amped-up paperboy business as part of the nut to begin his investments.

As he began buying more papers early in the decade, Buffett explained that he thought local papers, especially in mid-sized markets, had a defensible franchise. Always on the prowl for out-of-favor companies, he moved in a big way.

Lee is based in the Quad Cities area and is well-established, with most of its papers in the Midwest and far West. Its largest are the St. Louis Post-Dispatch and Arizona Daily Star in Tucson. So it now gains a national footprint with new papers including the Richmond Times-Dispatch and titles in Roanoke, Charlottesville, Greensboro and Winston-Salem in the South.

Lee gains scale in the transaction — as GateHouse did its recent acquisition of Gannett (retaining the Gannett name). The company has a reputation for a strong local ad sales force, including digital, so it can export that expertise to the papers it is bringing into the fold.

The Buffalo News bears close watching. It stayed independent through Buffett’s tenure as many other freestanding papers were sold. And it has been a model of stability with just two editors in the last 20 years — Margaret Sullivan, the last public editor of The New York Times and now a media columnist for the Washington Post; and Mike Connelly, former executive editor of the Herald-Tribune in Sarasota, Florida.

“In the news business, change is a constant,” Connelly commented to me. “Warren Buffett has been a great owner. As we build a digital business, we look forward to what Lee will bring.”

The Buffalo News was valued at a bargain-basement $10 million in the deal. The other 30 fetched an average of $4.333 million.

Lee’s shares, which had lost about two-thirds of their value since March 2019, rallied, up 90 percent in mid-afternoon trading.

For those who may not follow the industry closely, Buffett’s exit will probably be read as a high-profile vote of no confidence. However there is no reason to think any of the papers will shut down — though they may well shrink further and eliminate print editions some days of the week over the next several years.

Buffett was well aware of the digital transformation in progress. But given his age (89) I suspect he had a particular affection for print. And he was not alone in thinking that daily print remains a key to brand identity and community influence.

So I do take his exit as one more marker of big changes in the works and of falling investor confidence. One of my industry sources summarized the news as “take my newspapers … please.”

Rick Edmonds is Poynter’s media business analyst. He can be reached at redmonds@poynter.org.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
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