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Warren Buffett Places Risky Bet On Print Media; Buying 63 Newspapers, Takes Stake In Media General

 May 17, 2012 02:35 PM

(By Mani) Billionaire investor Warren Buffett seems to have placed a risky bet on the depressing print media as it would acquire a 19.9 percent stake in Media General, Inc. (NYSE:MEG), which was scrambling to pay off its debts amid declining sales from its print business.

Shares of Richmond, Virginia-based Media General soared as much as 58 percent on the news to $4.95. They have been trading between $1.14 and $6.84 for the past 52-weeks.

Media General, which is focused on growing its broadcast and digital businesses, said it agreed to sell 63 newspapers, including the Winston-Salem Journal, and the Richmond Times-Dispatch, for $142 million in cash.

The company's sale consists of 63 daily and weekly titles in Virginia, North Carolina, South Carolina and Alabama and websites, mobile and tablet apps. The sale, however, excludes the Tampa print assets for which the company is in talks with prospective buyers.

The latest development comes after Media General announced in February that it was exploring the potential sale of newspaper operation, and has considered selling assets at valuations to reduce its debt burden.

Warren Buffett would provide a $400 million term loan and a $45 million revolving credit line to Media General, which it will use to repay its existing bank debt due March 2013. In return, apart from a board seat, Buffett's company

Berkshire Hathaway will get penny warrants for about 4.6 million Class A shares, or 19.9 percent, of Media General.
The $400 million term loan will have an interest rate of 10.5 percent, and could come down to 9 percent if total leverage were to reach 3.50x. Media General now expects to pay about $67 million towards interest payments in 2012. Total interest expense, including non-cash amortization of issue discount, new issuance fees, and the warrants, is expected to be $80 million in 2012.

Buffett's Newspaper ConnectionBuffett has had a long tryst with newspapers. He has owned the Buffalo News of New York for decades and acquired his hometown newspaper, the Omaha World-Herald, in December. Berkshire Hathway also holds a 23 percent stake in Washington Post Co. (NYSE:WPO) and is its biggest shareholder.

The Media General newspapers will be managed by a sister company of the Omaha World-Herald. The sale is expected to close on June 25, subject to customary closing conditions.

The deal comes at a time when the newspaper industry is in a depressed state due to stiff competition from online media. The situation has led to the closure of several small newspapers as advertisers have begun to shift their dollars to the Internet and Television from the traditional medium such as newspapers.

Buffett's investment is definitely risky, but he has a different take altogether on the environment and hopes to revive the industry.

"In towns and cities where there is a strong sense of community, there is no more important institution than the local paper," Warren Buffett, Chairman of Berkshire Hathaway, said in a statement.

"The many locales served by the newspapers we are acquiring fall firmly in this mold and we are delighted they have found a permanent home with Berkshire Hathaway," Buffett added.

Media General AdvantageFor Media General, the deal allows it to focus on its broadcast television business and its future growth opportunities, including digital content and Mobile DTV. Broadcast television accounted for 77 percent of its total platform cash flow for the full year 2011 and accounted for 87 percent in the first quarter of 2012.

In addition, Media General expects that this year's event-driven revenue opportunities, including the Presidential elections, would bode well for its broadcast unit.

The company, which still own 18 TV stations, expects to generate $40 million to $45 million in political revenues and is poised to benefit from operating in the key battleground states of Ohio, Florida, Virginia and North Carolina.

Meanwhile, Super Bowl revenues on its eight NBC stations were strong, and the company expects Summer Olympics revenues will be strong, too. Retransmission fees are expected to reach $32 million to $37 million, compared with $21 million last year, as a result of rate increases in renewed agreements.


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