Buffett sells Berkshire's newspaper business in rare admission of defeat

Warren Buffett, a self-described newspaper "addict," will keep his habit of reading five papers a day, but he's giving up on owning them.

This week, Lee Enterprises announced it's buying Berkshire Hathaway's dozens of newspaper holdings for $140 million in cash.  (Lee has been managing some of the properties since 2018.) 

The deal includes Buffett's hometown daily, The Omaha World-Herald, and The Buffalo News, a Berkshire property since 1977.

Buffett’s love of newspapers goes way back. He delivered The Washington Post and other DC newspapers as a child, bought a very profitable Post stake for Berkshire in the 1970s, had a close friendship with Post publisher Katherine Graham, and worked closely with the editor of a small Berkshire-owned Omaha weekly that won a Pulitzer Prize in 1973.

In past years at the Berkshire shareholders meeting, Buffett has hosted a newspaper-tossing contest. Apple even created an iPhone version.

But, as you can see in this chronological collection of video clips from CNBC's Warren Buffett Archive, despite his love for newspapers he realized as early as the mid-1990s that the internet posed a severe threat to what had been a great business model.

In 2009, he told shareholders “unending losses” were possible for some newspapers, predicting Berkshire would not buy one “at any price.”

But just a few years later, he changed his mind. 

Berkshire bought dozens of small-to-medium sized daily and weekly newspapers, mostly through a $142 million deal with Media General in 2012.

He was betting that since a "local community paper is really indispensable to the people of the community," smaller papers wouldn't be hurt as badly as most big-city dailies.

Berkshire's newspapers wouldn't do much to "move the needle" for overall profits, he predicted, but they would still produce a "decent" rate of return. 

And, as his partner Charlie Munger pointed out to him, "You like doing it."

In a 2012 letter to the publishers and editors of Berkshire's newspapers, Buffett pointed out that Berkshire hardly ever sells its businesses. "Berkshire buys for keeps. Our only exception to permanent ownership is when a business faces unending losses, a remote prospect for virtually all of our dailies."

Less than eight years later, he'd had enough, although he was quoted in the Lee news release as saying he and Munger had "zero interest" in selling to anyone else because "no organization is more committed to serving the vital role of high-quality local news."

The union representing newsroom journalists at the World-Herald, however, tweeted, "Make no mistake. Lee is short for lousy."  It said, "We are blindsided, dismayed and disappointed" because the sale short-circuited its own effort, made with Berkshire's knowledge and approval, to find a local buyer.

The New Republic calls Buffett a "terrible newspaper owner," accusing him of "squandering" the opportunity to "find a model that can sustain meaningful reporting at the local level."

Buffett did find a way to offset some of the losses generated by Berkshire's sale of the newspapers for less than it paid for them.

It's charging Lee interest of 9% a year for a 25-year loan of $576 million to pay for the newspapers its buying from Berkshire and to refinance its long-term debt.

Despite that hefty rate, Lee will save $5 million a year on interest rate costs.

Its stock ended the week with a 69% gain.

BUFFETT AROUND THE INTERNET

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BERKSHIRE STOCK WATCH

BERKSHIRE'S TOP STOCK HOLDINGS 

Berkshire's top stock holdings by market value, based on today's closing prices. The number of shares held is as of September 30, 2019, as disclosed in the company's November 14 13F SEC filing.

The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.

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-- Alex Crippen, Editor, Warren Buffett Watch