Warren Buffett is considered one of the best investors over the long-term, but it’s hard to deny that the current market is leaving him little in terms of opportunities. The well-known value investor, whose signature strategy is buying well-known companies at discounted prices, has been struggling to find good deals in the current market environment. To top that off, some of his favorite businesses are no longer viable anymore due to changes in technology.
Warren Buffett’s Berkshire Hathaway (NYSE:BRK) is selling its long-time newspaper business, which he now considers to be unsustainable.
Buffett, who has been a long-time lover of newspapers, has previously lamented the fast decline of its newspaper business. Now he has decided to sell the entire business to Lee Enterprises (NYSE: LEE) for just $140 million. While not a large sum for an investor of his size, it does go to show just how much the market has changed over the past decade.
It’s also significant because Berkshire is well known for rarely selling any of its main, operating businesses. According to the Wall Street Journal, shareholders of the company have posted a section of a comment that Buffett wrote himself regarding Berkshire’s businesses.
“Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are also very reluctant to sell subpar businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations,” wrote Buffett according to the note. Taking this into consideration, the fact that the oracle of Omaha decided to go against this philosophy tells a lot about the state of the newspaper business as a whole.
Lee Enterprises has had a previous relationship with managing Berkshire’s newspaper business, having been hired by the company back in 2018 to run its newspaper segment. This new deal also provides Lee Enterprises with a $576 million loan from Berkshire with a 9% interest rate, giving Buffett at least some indirect exposure to the business.
In response to the news, shares of Lee Enterprises, an otherwise small-cap stock, shot up 67% in light of the announcement. Now Lee will manage up to 81 daily newspapers in comparison to the 50 it ran before this agreement with Berkshire. Lee has also stated that it expects the new deal to help boost profits significantly, while also giving the company the chance to streamline its operations. Lee has already said that it has found an extra $25 million in future savings thanks to its expertise in the newspaper business.
While this is a good piece of news for the small-cap newspaper manager, it definitely raises questions about where Berkshire Hathaway is going in the future.
Lee Enterprises Company Profile
Lee Enterprises Inc is a local news publication company in the United States. Its products include daily and Sunday newspapers, weekly newspapers and classified and few other specialty publications. Its products are used as a platform for advertising in mid-size markets. Revenues are generated primarily from retail and classifieds advertising and the remaining from subscriptions to its printed and digital products. – Warrior Trading News
