Warren Buffett's purchase of the Richmond Times-Dispatch and 62 other newspapers owned by Media General not only saves the venerable Richmond institution, but also gives the sagging print media industry a rare shot in the arm.
"Just like that," Gawker blogger Hamilton Nolan says, "this little mediocre newspaper chain becomes the embodiment of the industry's future."
Although last week's sale also includes Media General's other larger metropolitan daily, the Winston-Salem Journal, the bulk of the newspapers are smaller publications whose community-focused content isn't as easily replicated on the Internet. The publications also tend to have unique advertising markets.
"In towns and cities where there is a strong sense of community, there is no more important institution that the local paper," says Buffett, who just a few years ago shunned the idea of buying newspapers.
The billionaire investor is getting a good deal. His Omaha, Neb.-based BH Media Group, a subsidiary of his Berkshire Hathaway investment company, is buying Media General's newspapers for the bargain-basement price of $142 million and other assets. Although the newspapers vary greatly in size, the amount averages about $2 million per publication. That's remarkably low, considering that Buffett bought his hometown newspaper, the Omaha World Herald, for $200 million last year.
Buffett also will provide a huge credit line to sagging Media General with an unusually high interest rate of 10.5 percent, which should bring him greater returns than more traditional lending. In exchange, Buffett gets control of a seat on Media General's board and the right to purchase 19.9 percent of the company.
The announcement of the purchase comes just as Media General, staggering under more than $600 million in debt, was a week away from picking up $225 million in new financing. The sale clears the way for Media General pursue its goal of focusing on broadcasting and digital media.
The turn of events could be good news for the 150-year-old Times-Dispatch which, like many metropolitan newspapers, has been through a series of cuts in staff and space for news. Analysts praised the deal, calling it a boon for Media General shareholders and newspaper staffers.
"I am sure that employees in the newspaper division are probably happy to work for a firm with better management than what [Media General] offers," says Amit Chokshi of Kinnaras Capital Management, a Norwalk, Conn., hedge fund.
Buffett says he believes there's great value in community newspapers, there's no indication of significant changes coming to the T-D just yet. Buffett so far has had a "hands-off" policy involving editorial management at his newspapers in Omaha and in Buffalo, N.Y. A Media General spokesman says there will be no changes among top officials at the Times-Dispatch.
For now, Buffett's influence will be to help Media General with its debt problems. The deal clears the way for Buffett to lend up to $400 million to help refinance debt. A considerable part of that debt came from what some analysts say was the ill-advised decision in 2006 by Media General chief executive Marshall Morton to buy four medium-sized television stations for $600 million.