Berkshire Buys Media General Newspapers for $142 Million

May 17 (Bloomberg) -- Bloomberg's Betty Liu reports that Warren Buffett’s Berkshire Hathaway Inc. agreed to buy newspapers owned by Media General Inc. for $142 million in cash as it expands its publishing holdings. Berkshire will also provide Media General a $400 million term loan and a $45 million revolving credit line, the Richmond, Virginia-based newspaper company said today in a statement. She speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Berkshire Hathaway Inc. (BRK/A) agreed to pay $142 million for Media General Inc. (MEG)’s newspapers including the Richmond Times-Dispatch as Warren Buffett bets community-focused publications will weather an advertising slump.

Berkshire will also provide Media General a $400 million term loan with an interest rate of 10.5 percent, the Richmond, Virginia-based newspaper company said today in a statement. The deal includes all of the company’s newspapers except for the Tampa, Florida, group, which is being sold separately, according to the statement.

Berkshire is expanding in newspapers after purchasing Buffett’s hometown paper, the Omaha World-Herald Co., last year. The company is the largest holder of Washington Post Co. (WPO) and owns the Buffalo News of New York. Buffett, Berkshire’s chairman and chief executive officer, is expanding his holdings in the industry after telling shareholders in 2009 that papers have “potential for unending losses” and that he wouldn’t buy most of them “at any price.”

“I think there is a future for newspapers that exist in an area where there’s a sense of community,” Buffett said at Berkshire’s annual meeting in Omaha, Nebraska, on May 5.

Berkshire will also get warrants for about 4.6 million Class A shares representing 19.9 percent of Media General and the option to nominate a board member, according to the statement.

Focus on TV

The deal includes 63 daily and weekly newspapers in Virginia, North Carolina, South Carolina and Alabama and is expected to be completed on June 25, Media General said in the statement. The company’s properties include the Winston-Salem Journal in North Carolina and the Dothan Eagle in Alabama. Berkshire will also provide the company with a $45 million revolving credit line.

The sale allows Media General to focus on its television business, according to the the company. Media General jumped 33 percent to close at $4.18 in New York, the biggest gain since October. Before today, the firm’s shares had fallen more than 90 percent since trading above $72 in April 2004. Berkshire’s shares declined 0.8 percent today to $120,850.

Terry Kroeger, president of BH Media Group, the Berkshire subsidiary that made the purchase, told employees in Richmond that Buffett said to tell them “I did this because I love newspapers,” according to a story on the Times-Dispatch website.

‘One Puff Left’

The newspaper industry has suffered advertising declines as marketers shift budgets toward digital media. New York Times Co. (NYT) reported an 8.1 percent drop in ad revenue in the quarter ending in March and Gannett Co. (GCI), publisher of 82 daily newspapers including USA Today, saw an 8.4 percent drop in ad sales for the same period.

“I have a hard time seeing the long-term value of print media,” Meyer Shields, an analyst at Stifel Nicolaus & Co. who covers Berkshire, wrote in an e-mail.“There may be one ‘puff’ left, but to me, newspapers are the antithesis” of companies with a competitive advantage.

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