BH Media Group said Wednesday it had agreed to sell its newspaper properties — including the Winston-Salem Journal and Greensboro News & Record — to the Iowa newspaper chain that has run the group since June 2018.
Lee Enterprises Inc., based in Davenport, Iowa, is paying Berkshire Hathaway $140 million in cash to acquire 30 dailies, 49 paid weeklies and 32 other print products. The deal also includes The Buffalo News and Omaha (Nebraska) World-Herald, which Berkshire Hathaway owned separately.
The deal is expected to close in mid-March, the companies said. Lee would grow from 50 to 81 dailies, “nearly doubling its audience size…and (resulting in) an 87% increase in revenue”.
Media analysts expected Lee to buy the properties from BH Media once the management deal took effect.
“This is a compelling and transformative transaction for Lee,” Mary Junck, president of Lee, said in a statement.
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“It both refinances our long-term debt on attractive terms and provides new revenue opportunities, as well as operational synergies across an expanded portfolio.”
Lee would become the Journal’s third corporate owner in the journal’s 122-year history. Media General purchased the Winston-Salem newspapers from the Gray family in 1969.
“I’m very excited about this for the Greensboro News & Record and the Winston-Salem Journal,” said Alton Brown, publisher of the two properties. “Lee is a leading news media company with an excellent reputation and a strong commitment to local journalism.”
BH Media has owned the Journal since July 2012 after spending $142 million to buy nearly the entire newspaper portfolio from Media General Inc. BH Media purchased News & Record from Landmark Media Enterprises for an undisclosed price in February 2013 .
“We have had a strong, long-term relationship with Berkshire Hathaway, which has been a significant investor in our capital structure for years,” Junck said. “As the manager of BH Media for 18 months, we have developed an in-depth knowledge of these properties and an immense respect for their operators.
“We know first-hand the power this acquisition brings to further accelerate our industry-leading digital revenue growth while maintaining our focus on delivering high-quality local news,” Junck said.
Warren Buffett, chairman and chief executive of Berkshire Hathaway, said the deal is a natural progression from Lee’s management of BH Media publications.
“(Lee officials) have achieved outstanding performance managing BH Media’s newspapers and continue to lead the industry in digital market share and revenue. We had no interest in selling the band to anyone else for one simple reason: we believe Lee is in the best position to handle the challenges of the industry.
“No organization is more committed to playing the vital role of high quality local news, however delivered, than Lee. I am confident that our newspapers will be in good hands in the future, and I am also pleased to deepen our long-term relationship with Lee through the funding agreement.
As was the case when Berkshire Hathaway purchased the newspaper properties from Media General, Berkshire provides a key financial aspect to the Lee transaction.
Berkshire Hathaway became Media General’s sole financial lender with a $400 million term loan and $45 million line of credit. This essentially paid off Media General’s existing debt to bank lenders, including Bank of America Corp. Berkshire took a 19.9% stake in the outstanding shares of Media General.
As part of the agreement with Lee, Berkshire Hathaway is providing $576 million in long-term financing at an annual interest rate of 9%. The companies said proceeds from Berkshire’s financing will be used to pay for the acquisition, refinance Lee’s existing $400 million debt and “provide sufficient liquidity to Lee’s balance sheet to allow termination of the revolving credit facility. of Lee”.
Once the deal is done, Berkshire Hathaway would be Lee’s sole lender.
BH Media was listed in the press release as having revenue of $373.4 million for fiscal 2019.
Lee said that according to his BH Group publications management, he expects to have between $20 million and $25 million in projected annual revenue and cost synergies.
Rick Edmonds, media affairs analyst for the nonprofit Poynter Institute, said the deal was likely only a matter of time since “BH Media and Buffett had already signaled they wanted out.”
“Lee gets an extra ladder. Duplicates can be eliminated. Lee has been managing for a while already, so I would expect cuts, including in newsrooms, but perhaps not as severe as in other takeovers.
An unexpected financial wrinkle appeared about seven hours after the Berkshire Hathaway-Lee announcement when a subsidiary of a hedge fund group publicly announced that it had acquired a 5.9% stake in Lee.
Alden Global Capital’s MNG Enterprises purchased 3.4 million shares of Lee at $2.7173 per share for an aggregate investment of $9.24 million.
The 5.9% stake makes Alden Lee’s third largest shareholder. Cannell Capital held a 7.9% stake in 4.57 million shares and Franklin Mutual Advisors LLC a 7.5% stake in 4.36 million shares, according to Lee’s 2020 proxy filing on January 13. .
Alden said in its regulatory filing that it “intends to engage in discussions” with Lee’s management and its board of directors “on certain operational and strategic matters, including, but not limited to, the recently announced acquisition of Berkshire Hathaway’s news operations and matters relating to (Lee’s) 2020 annual meeting.
If Alden’s prior ownership pattern is any indication, it’s likely he’ll seek representatives on Lee’s board.