Lee Enterprises, owner of the Lincoln Journal Star, announced Wednesday that it will purchase BH Media Group, which owns the Omaha World-Herald.
As part of the $140 million deal, Berkshire Hathaway — the Omaha-based company run by Warren Buffett — will provide $576 million in long-term financing to Lee at a 9% annual rate. That covers the purchase price and $400 million of existing Lee debt, which currently has rates of anywhere from 9.5%-12%, according to company filings. Lee said it would save $5 million annually on financing costs.
Mary Junck, Lee’s chairman, extolled the benefits of having a "single long-term lender who knows us well and is committed to our success."
Buffett, Berkshire Hathaway’s chairman and CEO, said Lee was the only company he considered selling to.
“We had zero interest in selling the group to anyone else for one simple reason: We believe that Lee is best positioned to manage through the industry’s challenges," Buffett said. "No organization is more committed to serving the vital role of high-quality local news, however delivered, as Lee. I am confident that our newspapers will be in the right hands going forward and I also am pleased to be deepening our long-term relationship with Lee through the financing agreement.”
People are also reading…
In addition to putting Nebraska's two largest newspapers under one owner, the deal also includes many of the other major publications in the state.
In Nebraska, Lee publishes daily papers in Lincoln, Beatrice, Columbus, and Fremont. In addition to Omaha, BH Media daily newspapers in Nebraska include Grand Island, North Platte, Kearney, Scottsbluff and York.
Lee, based in Davenport, Iowa, said the addition of Berkshire Hathaway’s "portfolio of high-quality local publications will add significant size and scale to Lee’s operations."
Once the deal closes, which is expected to occur in March, Lee will own 81 daily newspapers, up from 50, and it said its audience size will nearly double.
Junck called the properties "a perfect fit for our portfolio."
Lee has managed BH Media's publications since July 2018, and it said that, based on that work over the past 18 months, it expects to realize $25 million in annual cost savings and increased revenue from the acquisition.
“This is a compelling and transformative transaction for Lee," Junck said.
She listed a number of benefits of the deal, including better terms on the company's long-term debt, new revenue opportunities and "operational synergies."
Buffett has owned the Buffalo (N.Y.) News for decades but only began investing in other newspapers in the past decade.
He bought the World-Herald, his hometown newspaper, in 2011 for $150 million in cash and the assumption of $50 million in debt.
A year later, Buffett paid $142 million for the Media General chain, with more than two dozen daily newspapers, and formed BH Media Group.
BH Media later bought newspapers in Waco, Texas; Tulsa, Oklahoma; and Atlantic City, New Jersey.
Kevin Mowbray, Lee president and CEO, said the recent management deal between the two companies has led to a "strong bond and shared culture" and also has driven digital and subscription revenue growth as well as innovation.
"We are confident we can achieve even greater success as one, integrated company," he said.
Mowbray said that BH Media had revenue of $373 million in 2019 and earnings before taxes, depreciation and amortization of $47.4 million.
In its 2019 fiscal year that ended Sept. 30, Lee reported $510 million in revenue and earnings before taxes, depreciation and amortization of $121.5 million.
The merger of the two companies continues a trend of consolidation in the publishing industry.
Last year, Gannett and Gatehouse Media combined into the nation's largest newspaper company, with more than 260 daily newspapers, in a $1.4 billion deal.
Tribune also has flirted with potential partners and is currently 32% owned by hedge fund Alden Global Capital, which owns more than 60 daily newspapers, including the Denver Post and Boston Herald, through its MNG Enterprises.
MNG bought a nearly 6% stake in Lee on Wednesday after the BH Media deal was announced.
Rick Edmonds, a media business analyst at The Poynter Institute, said consolidation in the industry is likely to continue.
"It's a way to get bigger to get some scale," he said.
Edmonds said mergers also allow companies to take strategies and initiatives that are working well at certain papers and spread them to others.
He pointed out that Lee has a strong industry reputation when it comes to local ad sales, especially in the digital realm, and it will be able to apply that expertise to the BH Media papers.
That's something that's already been going on as part of Lee's management agreement, and the formal merger will allow it to grow faster.
"We know first-hand the power this acquisition brings for further accelerating our industry-leading digital revenue growth while maintaining our focus on delivering high-quality local news," Junck said. "We look forward to capturing the tremendous value of this transaction for readers, advertisers and shareholders.”