The Washington Post (WPO) will be sold for $250 million to Amazon.com Inc. (AMZN) Chief Executive Officer Jeff Bezos, who is betting he can apply his success in e-commerce to the struggling newspaper industry.
Bezos is making the deal as an individual and not as part of Amazon, the world’s biggest online retailer, according to a statement yesterday. Current owner Washington Post Co., which isn’t selling its Kaplan education division and other businesses as part of the transaction, now plans to change its name.
In acquiring the publication, famed for its coverage of the 1970s Watergate scandal that led to the only resignation of a U.S. president, Bezos becomes the latest billionaire to try his hand at reviving the newspaper business. Boston Red Sox owner John Henry agreed to buy the Boston Globe last week, and Warren Buffett assembled an empire of community papers in recent years.
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“I understand the critical role the Post plays in Washington, D.C., and our nation, and the Post’s values will not change,” Bezos said in the statement. “Our duty to readers will continue to be the heart of the Post, and I am very optimistic about the future.”
The deal marks the end of the paper’s stewardship by the Graham family and its relatives, who acquired the Post in 1933.
It was on their watch that newspaper covered a 1972 break-in at the Democratic National Headquarters at Washington’s Watergate complex and subsequent cover-up, eventually leading President Richard Nixon to resign. The film “All the President’s Men” chronicled the events and enshrined the Post’s mysterious source -- “Deep Throat” -- in popular culture. Reporters Bob Woodward and Carl Bernstein protected their source, FBI agent W. Mark Felt, until Felt revealed his identity in Vanity Fair in May 2005.
Seven years of declining sales, triggered by an industrywide advertising slump, ultimately pushed the family to sell. Investment bank Allen & Co. handled the process.
“This is a day that my family and I never expected to come,” Publisher Katharine Weymouth, niece of Chairman Don Graham, said in a letter to readers. “The Washington Post Co. is selling the newspaper it has owned and nurtured for eight decades.”
‘Threw in Towel’
Washington Post Co., which also owns Post-Newsweek Stations and Cable ONE, hasn’t announced what its new name will be. In addition to buying the Washington Post, Bezos will get Greater Washington Publishing, the Gazette newspapers, Express, El Tiempo Latino and Robinson Terminal.
“It’s kind of like the Grahams threw in the towel,” said Ken Doctor, an analyst at Burlingame, California-based research firm Outsell Inc. “They looked at the future, and they said, ‘We can’t see how to get from here to there, and we need someone who knows what to do.’”
Washington Post Co. shares climbed 4.3 percent to $593 at the close in New York, reaching the highest price since 2008. The stock has gained 62 percent this year.
Washington Post Co.’s newspaper division reported widening operating losses in the past two years, including a $53.7 million loss in 2012, according to its annual filings. The division’s annual sales declined 7 percent to $581.7 million in 2012, with the Washington Post’s print advertising, once the lifeblood of the paper, falling 14 percent to $228.2 million in the same period.
As part of the agreement, Bezos will take on the pension obligations of current employees while Washington Post Co. will handle retired workers. The company also will provide Bezos with $50 million to help pay the obligations. The sale proceeds will go to the Washington Post Co., rather than the Graham family directly.
In a May filing, Washington Post Co. had valued its newspaper-publishing division at $255.6 million -- within $6 million of Bezos’s purchase price. That’s less than 10 percent of the company’s $4.4 billion market value.
The transaction extends a frenzy of media deals over the past four days. On Aug. 3, New York Times Co. (NYT) announced plans to sell the Boston Globe to Henry, a billionaire hedge-fund manager who owns the Red Sox and the Liverpool Football Club. Times Co. sold the paper for $70 million, more than $1 billion less than the Globe’s purchase price in 1993.
IBT Media, meanwhile, said it would buy Newsweek from IAC/InterActiveCorp, splitting it from the Daily Beast brand. Terms of that deal weren’t disclosed.
Bezos, 49, has a net worth of $27.9 billion, making him No. 16 on the Bloomberg Billionaires Index. He ranks above Google Inc. co-founders Larry Page and Sergey Brin, as well as Microsoft CEO Steve Ballmer and Dell Inc. (DELL) founder Michael Dell.
Over the past three months, Bezos’s 86.4 million Amazon shares have increased or decreased in value each day by an average of $249 million -- almost the same as the price he’s paying for the newspaper.
Most of Bezos’s fortune is tied to a 19 percent stake in Amazon. Since the company’s initial public offering in 1995, Bezos has sold almost $2 billion in Amazon stock. Much of that has been plowed into Blue Origin, his closely held space-exploration company.
After deducting $175 million in Blue Origin funding, Bezos probably has about $1.7 billion in cash and other investable assets, based on an analysis of insider transactions, dividend income, taxes and market performance.
Bezos made an earlier foray into the media business in April, when he participated in a $5 million investment round for Business Insider Inc., the news site co-founded by Henry Blodget, the former Internet industry analyst. The Amazon founder’s Bezos Expeditions investment firm handled the investment.
Bezos said he would keep the Post’s current management in place while he remains in Seattle focusing on Amazon. Weymouth will stay on as publisher and CEO.
“I am happily living in ‘the other Washington’ where I have a day job that I love,” Bezos said. “The Post already has an excellent leadership team that knows much more about the news business than I do, and I’m extremely grateful to them for agreeing to stay on.”
While he won’t be moving to the capital, Bezos has taken an interest in politics before. He and his wife, MacKenzie, made a $2.5 million donation to a Washington campaign to defend the state’s law protecting same-sex marriage last year. He also has supported the creation of a federal framework for collecting sales tax online.
Drew Herdener, a spokesman for Bezos, declined to comment beyond the public statements.
In tackling the newspaper industry, Bezos is following in the footsteps of Buffett, who has his own connection to the Post. Buffett served on the board of Washington Post Co. until 2011 and his company, Berkshire Hathaway Inc., is the Post’s largest shareholder -- an investment he pledged to keep the year he resigned as a director. Buffett didn’t respond to a request for comment sent to an assistant yesterday.
Berkshire held 1.73 million Washington Post shares as of July 17, according to a regulatory filing. If unaltered, that stake climbed by more than $40 million today. Buffett has said in letters to investors that he purchased the shares for about $10 million in 1973. They’re now worth about $1 billion.
Berkshire has been expanding its newspaper operations in the past two years, buying publications in towns with a strong sense of community, rather than in large cities with more competition among news providers. The enthusiasm for print journalism is a reversal for Buffett, who said in 2007 that investors in the industry faced “long-term problems.”
Buffett was a longtime confidant and friend of Katharine Graham, the former Post chairman and CEO who died in 2001. In May, he called her one of his role models and an example of a “super high-grade” woman who didn’t think she deserved praise. The billionaire also is friends with Don Graham, Katharine Graham’s son, according to Alice Schroeder’s “The Snowball: Warren Buffett and the Business of Life.”
The Post’s sale was necessitated by a declining newspaper industry and challenges too large for a small publicly held company to handle, Don Graham said in a separate statement. The Washington Post’s weekday circulation fell 6.5 percent this year to 474,767, according to March 31 figures from the Alliance of Audited Media.
“Our revenues had declined seven years in a row,” Graham said. “We had innovated and to my critical eye our innovations had been quite successful in audience and in quality, but they hadn’t made up for the revenue decline. Our answer had to be cost cuts and we knew there was a limit to that. We were certain the paper would survive under our ownership, but we wanted it to do more than that. We wanted it to succeed.”
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