Berkshire Hathaway to buy Media General newspapers

(Reuters) - Warren Buffett's Berkshire Hathaway Inc is making another bet on the newspaper industry, with a deal to buy the majority of Media General Inc's papers for $142 million in cash.

Berkshire will also loan $400 million to the company and provide a $45 million credit line. Media General will issue warrants for approximately 4.6 million Class A shares, representing 19.9 percent of its existing shares outstanding.

Media General's shares soared 38 percent to $4.33 in mid-morning trade, touching their highest level in six weeks. The company had said in February it was exploring the sale of the papers.

The 63 daily and weekly newspapers scattered throughout the U.S. Southeast, including the Richmond Times-Dispatch, will be operated under BH Media Group, a new subsidiary of Berkshire Hathaway. The sale does not include newspapers in Media General's Tampa division, which will be sold separately.

Berkshire owns the Buffalo News, the Omaha World-Herald Co and a stake in the Washington Post Co. Berkshire also reportedly holds a small stake in the recently reorganized newspaper chain Lee Enterprises.

None of the papers that Berkshire owns directly are in the top 25 nationwide, according to the Audit Bureau of Circulations, which one analyst said fits with Buffett's strategy.

"Berkshire Hathaway is clearly (taking) a vote of confidence in small-town local newspapers. They didn't buy the big city newspaper Tampa Tribune, which is struggling," said Benchmark Capital analyst Edward Atorino.

"They're basically giving Media General a lease on life here. This is chump change but Berkshire Hathaway doesn't fool around. I don't think Berkshire Hathaway does anything where they're going to lose money."

Buffett is paying slightly less for the Media General papers than he paid late last year for his hometown paper, the World-Herald. That deal included six other dailies and several weeklies in Nebraska and Iowa.

'REASONABLE' INVESTMENT

That deal raised eyebrows, as it looked to some to be more like a rescue of a local business with a clouded financial picture than a long-term investment. Many also pointed to his highly skeptical comments in his 2007 letter to shareholders.

"When an industry's underlying economics are crumbling, talented management may slow the rate of decline. Eventually, though, eroding fundamentals will overwhelm managerial brilliance," he said in discussing the shrinking profits at his first newspaper holding, the Buffalo News.

But Buffett was adamant that the World-Herald deal was "reasonable," and told shareholders earlier this month they were likely to see him do more.

"We may buy more newspapers. I think the economics work out OK," Buffett said at Berkshire's annual meeting on May 5.

The new holding entity, BH Media Group, also includes the World-Herald papers. Terry Kroeger, formerly CEO of the World-Herald Co, is president of the group.

It was not clear where or whether the Buffalo News fits into the new entity. Buffett's assistant was not immediately available to comment.

With the nearly 20 percent stake in Media General, Buffett also gets a foot back into the broadcast television business, an industry he knows well. After the newspaper sale, the remaining Media General will be mostly a TV company, with a number of NBC affiliates.

In the 1980s, Buffett helped Capital Cities finance its purchase of the ABC television network and for years remained one of its key shareholders.

(Additional reporting by Supantha Mukherjee in Bangalore; Editing by Viraj Nair and Jeffrey Benkoe)

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