Berkshire Hathaway to Buy Omaha World-Herald Newspaper

By Andrew Frye - Dec 1, 2011 6:01 AM GMT+0700

Warren Buffett’s Berkshire Hathaway Inc. will expand its media holdings by acquiring the Omaha World-Herald Co., publisher of the billionaire’s hometown newspaper.

The World-Herald reported the price as $150 million plus assumption of debt. The deal would give Berkshire control of the World-Herald, six other daily newspapers and several weekly newspapers across Nebraska and southwest Iowa, according to a company statement today. Sellers include employee shareholders and the Peter Kiewit Foundation.

Buffett is putting aside his doubts about 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.” Publishers have lost revenue as readers shift to other media including the Internet.

Buffett told employees today that newspapers “have a decent future,” according to the World-Herald’s account. “It won’t be like the past. But there are still a lot of things newspapers can do better than any other media.” As for the cost, Buffett said, “it’s not a crazy price. It certainly is not a bargain.”

In addition to the $150 million cash purchase, Berkshire will take on $50 million of World-Herald debt, the newspaper reported. Buffett didn’t respond to an interview request e- mailed to Berkshire’s Omaha headquarters.

“That’s a pretty generous price,” said John Morton, a veteran newspaper analyst and president of media consulting firm Morton Research Inc. who writes a column for the American Journalism Review. “That’s a price that you would have paid for it five years ago.”

Home Team

“He’s rooting for the home team,” said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett.” “But he says it’s profitable and well-run.”

The World-Herald is 80 percent owned by its employees and 20 percent held by Peter Kiewit Foundation, the paper said today in its news story. It’s the No. 49 newspaper in the U.S. with circulation of 135,282 daily and 170,381 on Sunday, according to the company. CEO Terry Kroeger will stay with the business after the acquisition, Berkshire said.

Buffett, in his fifth decade as CEO of Berkshire, won a Pulitzer Prize -- the industry’s highest honor -- for investigative reporting in 1973 as owner of the Omaha Sun. The paper was cited for an analysis of funding at Boy’s Town, a local charity, according to Alice Schroeder’s biography, “The Snowball, Warren Buffett and the Business of Life.”

Media Holdings

Berkshire’s holdings include Business Wire, which distributes press releases to the media. Buffett’s firm is also the biggest shareholder of the Washington Post Co. (WPO) and owner of the Buffalo News of New York.

“It’s a business which has been overly maligned for having lost its relevance,” said Thomas Russo, a partner at Berkshire investor Gardner Russo & Gardner. “I suspect the price is such that he can pencil out a return.”

Buffett has been among the industry’s critics and derided the newspaper model at Berkshire’s 2008 annual meeting, according Matthews’s book.

“Imagine that someone came along saying, ‘I have a great idea: Let’s chop trees down, buy expensive printing presses, and buy a fleet of delivery trucks, all to get pieces of paper to people to read about what happened yesterday,’ ” Buffett said, according to Matthews.

The World-Herald is the largest employee-owned newspaper in the U.S., with a news staff of about 200 who produce morning and evening editions, according to its website.

Brand Names

The purchase won’t have much impact on the overall performance of Berkshire Hathaway, which generated $136 billion in revenue last year and $13 billion in profit on activities that include insurance, running utilities and railroads, real estate, manufacturing and retailing.

Brands include Geico insurance, Fruit of the Loom underwear and Dairy Queen ice cream. Berkshire is among the biggest stakeholders at banks including U.S. Bancorp and Wells Fargo & Co., and Buffett has come to the aid of financial firms such as Goldman Sachs Group Inc. and Bank of America Corp. with capital injections.

Berkshire’s Class A stock rose 4.9 percent to $118,500 as of 4:01 p.m. in New York.

As for the World-Herald, “it’s very difficult to see this as a financial investment,” said Meyer Shields, an analyst with Stifel Nicolaus & Co. who has a “hold” recommendation on Berkshire’s stock. Buffett has “a desire to cultivate his legacy, and if he can control the first draft of history, that makes it a little bit easier.”

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net