Warren Buffett, the man sometimes described as the world’s smartest investor, is getting out of newspapers and seems likely also to retreat from a similarly disappointing investment in book publishing. He’s agreed to sell his 31 US daily newspapers to Lee Enterprises for $140m in cash. The companies have worked together since 2018, when Buffet’s Berkshire Hathaway group hired Lee to run all of its newspapers except The Buffalo News, which Buffett has owned for more than 40 years.
The deal announced on Wednesday includes that publication as well as Omaha World-Herald, Buffett’s hometown newspaper in Nebraska. But Berkshire Hathaway is financing the deal by providing a $576m, 25-year loan to Lee at 9% which Lee will use to pay for the acquisition and refinance its $400m existing debt.
Lee will now publish 81 daily papers in 21 US states (up from 50). The Iowa-based public company currently owns news outlets such as the St. Louis Post-Dispatch and the Arizona Daily Star in Tucson. The 130-year-old company also publishes more than 300 weekly, classified and specialist publications.
The divestment comes just eight years after newspaper analysts greeted Buffett’s newspaper acquisitions as “proof” of the industry’s longterm viability. As recently as 2013, he had touted the longterm future of local newspapers in explaining why he had acquired some 25 newspapers publications for $344m: “People will seek their news — what’s important to them — from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost.”
Now, he says newspapers are “toast” and that they have declined faster than he expected. Buffett is famous for seldom selling any of his operating businesses. On the Berkshire Hathaway web site, he says: “Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are also very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labour relations.”
But newspapers have not been Buffett’s only media headache. Another of his one-time favourite businesses is now said to have become his “most difficult problem”.
He acquired the 100-year-old World Book, a print publisher of encyclopedias, as part of Scott Fetzer in 1986. “It sells more sets in the US than its four biggest competitors combined,”Buffett told shareholders, adding that its competitive pricing and positive ratings made it a quality purchase…I’ve been a fan (and user) for 25 years, and now have grandchildren consulting the sets just as my children did.”
Buffett trumpeted World Book’s success over succeeding years. Its encyclopedia sales surged 45% between 1982 and 1986, saying that the books were “extraordinarily well-edited and priced” and “a bargain for youngster and adult alike.” In 1987, he touted the “most dramatically revised edition since 1962” with 10,000 more colour photos, 6,000 revised articles, and 840 new contributors. In 1988 and 1989, he included World Book in Berkshire’s “Sainted Seven” businesses along with See’s Candies and Nebraska Furniture Mart.
But the success proved short-lived. Profits peaked at $32m in 1990 and then plunged to below $9m in 1995. And it’s been a miserable performance ever since. Some investors think World Book might have been Buffett’s “quickest mistake” ever, because Encarta and other digital rivals “just destroyed the business”. So, the Sage of Omaha is fallible, especially in media.
