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Warren Buffett's Berkshire Hathaway to purchase all Media General newspapers except Tampa Tribune for $142 million

The Tampa Tribune and its area print products have been excluded from a $142-million deal in which Richmond Va.-based Media General will sellmedia_general_68216.jpg 63 daily and weekly newspapers to superstar investor Warren Buffett's Berkshire Hathaway company.

Along with the $142-million, Media General will receive a $400 million loan and $45 million in revolving credit to pay off existing bank debts.  The deal is expected to close June 25, allowing Media General to focus on its digital and television businesses.

The company owns 21 daily newspapers and a host of other print products throughout the Southeastern U.S., Tennessee and Ohio, including the Richmond Times-Dispatch, the Winston Salem-Journal and the Daily Progress in Charlottesville, Va.

Industry experts predicted the company might have trouble including the Tampa Tribune in any sale, given how intertwined the Tampa newspaper's operations are with its TV station, WFLA-Ch. 8. Overall, the company posted a $32 million loss in its first-quarter earnings report last month.

Media General said in a press release it is in discussions with other possible buyers for its Tampa area print assets and a spokesman stressed there are several parties interested in a purchase.

Rick Edmonds, media business analyst for the non-profit school which owns the Tampa Bay Times, the Poynter Institute, said there are three scenarios most likely for the Tampa-area Media General print outlets.

Halifax Media, the company which recently bought 16 regional papers from the New York Times including the Lakeland Ledger and Sarasota Herald Tribune, could buy the papers. An unknown buyer could purchase and radically transform the Tribune, perhaps by focusing on digital or reducing the days the print product is produced. Or the Tampa Bay Times could buy the newspapers, salvage the advertising and subscriber lists and shut down the competing newspaper.

"The Tribune is really like the second newspaper in a two-newspaper area," said Edmunds, noting that few major metropolitan areas have two newspapers in the same town, anymore. "That’s a real bad place to be.”

Paul Tash, chairman and CEO of Times Publishing Company, declined to comment on any rumors of a Tampa Bay Times purchase, saying, "I see it is a strong vote of confidence in the newspaper business that such a savvy investor as Warren Buffet sees attractive prospects for nearly all of Media General's newspapers."

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

mediageneralnewspapers.jpgIn November, Buffett's company bought the company which publishes the Omaha World Herald newspaper in Buffet's hometown. A sister company, World Herald enterprises, will manage the Media General newspapers.

Larry King, vice president of content for the company which runs the World Herald and the collection of print outlets owned by that company when Berkshire Hathaway purchased it, said the current deal will double the size of the company's print operations.

"This has only been under discussion for about two or three weeks," said King, who only found out about the deal this morning and could not say why Berkshire Hathaway excluded Tampa. "We're just being introduced the the Media General newspapers today...(but) in communities which have a sense of community, we've found newspapers can be quite profitable."


Below is the press release from Media General: 

Media General Announces Agreements with Berkshire Hathaway for Purchase of Newspapers and New Financing

RICHMOND, Va. - Media General, Inc. (NYSE: MEG) today announced that it has signed agreements with Berkshire Hathaway, Inc., (NYSE: BRK.A and BRK.B) for the purchase of newspapers and new financing.  A subsidiary of Berkshire Hathaway, BH Media Group, will purchase all of the newspapers owned by Media General, with the exception of the Tampa group, for $142 million in cash. Media General said it is in discussions with other prospective buyers for its Tampa print assets.

Under a separate credit agreement, Berkshire Hathaway will provide Media General with a $400 million term loan and a $45 million revolving credit line. The new loan will be used to fully repay the company’s existing bank debt due March 2013 and will mature in May 2020. In conjunction with this, Media General will issue Berkshire Hathaway penny warrants for approximately 4.6 million Class A shares, which represents 19.9 percent of Media General’s existing shares outstanding. In addition, Berkshire Hathaway has the option to nominate a director to Media General’s Board of Directors.

The newspapers being purchased by BH Media Group include 63 daily and weekly titles in Virginia, North Carolina, South Carolina and Alabama, in addition to digital assets, including websites and mobile and tablet applications. The newspapers also have a substantial commercial printing business.


“These newspapers are great institutions and powerful brands in their respective markets,” said Terry Kroeger, president of BH Media Group.  “We are honored to have the opportunity to work with our new colleagues as we continue to produce top-notch news and advertising products in both print and digital platforms.”

The Media General newspapers will be part of BH Media Group, along with the Omaha World-Herald Company newspapers. A sister company of the Omaha World-Herald Company, World Media Enterprises, Inc., will manage the Media General newspapers.

Marshall N. Morton, president and chief executive officer of Media General, said, “Selling our newspapers represents a monumental change for us.  We’re very happy that our newspapers will become part of Berkshire Hathaway’s BH Media Group, a company with a strong commitment to local news leadership and community engagement.  This single transaction for virtually all of our newspapers accelerates the timing of our strategy to focus on our broadcast television business and its future growth opportunities, including digital content and Mobile DTV,” said Mr. Morton.

“We are extremely pleased to enter into a new financing partnership with the highly respected Berkshire Hathaway organization. Our new credit agreement addresses Media General’s long-term capital needs and provides the company with significant financial and operating flexibility,” said Mr. Morton.

Media General said that in recent years its model has shifted toward its broadcast and digital businesses. Broadcast television accounted for 77 percent of total Platform Cash Flow for the full year 2011; in the first quarter of this Political year, it accounted for 87 percent. Mr. Morton said Media General is capitalizing well on this year’s event-driven revenue opportunities in broadcast. The company expects to generate $40-45 million in political revenues and will benefit from operating in the key battleground states of Ohio, Florida, Virginia and North Carolina.  Super Bowl revenues on its eight NBC stations were strong and the company expects Summer Olympics revenues will be strong as well. Retransmission fees are expected to reach $32-37 million, compared with $21 million last year, as a result of rate increases in renewed agreements. “Longer term, we have a solid plan for significantly increasing our broadcast cash flow margins and total company EBITDA,” said Mr. Morton. 

The newspaper transaction is expected to close on June 25.  A transition will take place over several months, in coordination with Media General personnel.  World Media Enterprises president Douglas Hiemstra will closely oversee the transition and operations of the acquired newspapers for Berkshire Hathaway.  After transaction fees and retaining $25 million in cash, Media General will use the proceeds from the newspaper sale to offer to repay existing senior secured notes, with any remaining funds to be used for repayment of the new term loan at par. The sale is subject to customary closing conditions, including Federal Trade Commission approval under the Hart-Scott-Rodino antitrust act. 

The $400 million first lien term loan will have an interest rate of 10.5 percent, which could step down to 9 percent if total leverage were to reach 3.50x. The new loan will be issued at a discount of 11.5 percent and is secured pari passu with the company’s existing 11-3/4 percent senior secured notes due 2017. The closing date of the new credit agreement is expected to be no later than May 24. The existing term loan in the amount of approximately $364 million will be fully repaid the same day the new credit agreement becomes effective.  Media General now expects total cash interest expense in 2012 will be approximately $67 million. Total interest expense, including non-cash amortization of issue discount, new issuance fees, and the warrants, is expected to be $80 million in 2012.

 

[Last modified: Thursday, May 17, 2012 1:19pm]

    

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