Legendary investor Warren Buffett is increasing his newspaper investments and putting cash behind his belief that the sector has valuable assets and a solid future.
Buffett expanded his Berkshire Hathaway (NYSE:BRK.A) newspaper empire at the end of June by buying Texas daily Bryan-College Station Eagle from Evening Post Publishing Co. for an undisclosed sum.
The acquisition followed Berkshire's US$142 million cash purchase of 63 newspapers, including 23 dailies, from Media General Inc. in May.
For decades previous, Berkshire had owned only one newspaper – the Buffalo News – so the company naturally raised eyebrows in November when it bought its second paper, the Omaha World-Herald. Buffett, as Berkshire's CEO, is now one of the largest newspaper publishers in the U.S., even without considering Berkshire's stakes in Lee Enterprises Inc. (NYSE:LEE) and Washington Post Co. (NYSE:WPO).
Business in Vancouver owner Glacier Media Inc. (TSX:GVC) has similarly been acquiring assets; late last year, it acquired 21 publications from Postmedia Network Inc. (formerly Canwest) for $86.5 million. The deal included the Victoria Times Colonist, Vancouver Courier and North Shore News and helped Vancouver-based Glacier increase revenue 25.2%, to $76.4 million, for the three months that ended March 31. Gross profit jumped 11.8% to $24.8 million.
Peter Kvarnstrom, Glacier's vice-president of B.C. newspaper operations, would not rule out more acquisitions, although he said none were imminent.
"Our industry is alive and well," said Kvarnstrom, who also chairs the Canadian Newspaper Association. "Some major daily papers in the U.S. have woes, but in Canada newspaper readership is at an all-time high. The same thing is true internationally."
Kvarnstrom said the secret to Glacier's success is having unique, relevant and compelling content.
Victoria-headquartered community newspaper owner David Black is also bullish about the industry, while recognizing the importance of keeping debt in check.
Standard and Poors Ratings Services (S&P) downgraded its outlook for Black Press last month to negative from stable. S&P reported that Black Press has "less than adequate liquidity" and faces "ongoing headwinds" with revenue and profitability given tough industry fundamentals.
But Black, who owns more than 80% of Black Press, said his company's debt is manageable and that its substantial free cash flow is more than enough to keep paying down debt.
"The industry is really good value and a good place to invest," he said. "Look at our margin. It's almost 20%. That's not bad for any industry."
Black Press owns 75 newspapers in B.C., nine newspapers in Alberta, the Honolulu Star Advertiser, the Akron Beacon Journal and 17 printing plants.
S&P noted that Black Press generates a 19.4% margin on earnings before interest, taxes, depreciation and amortization (EBITDA). The previous year its margin was 20%. Black would not reveal how much of that margin trickles down to become profit, but he stressed that his venture has "lots" of free cash flow to manage debt.
"We entered the recession with too much debt," Black said. "We'd done a big acquisition that proved not to have been very smart."
Black Press bought the Akron Beacon Journal from Knight Ridder in 2006 for what Black said was "more than $100 million." Several years later, Black Press wrote off $100 million in goodwill related to the purchase. He added that "the prices [of newspaper assets] have come down, especially in the U.S., to the point where people are buying again." •
