Warren Buffett is selling his ailing newspaper business in another disheartening sign for local publications that serve smaller U.S. cities, like Buffalo, New York, and Richmond, Virginia.
The companies have worked together since mid-2018, when Berkshire 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.
Buffett, who was a newspaper delivery boy as a teen, will still have a foot in the industry; his company is providing the long-term financing for the deal.
Berkshire is lending $576 million at a 9% annual rate to Lee, which will use the money to buy the newspapers, refinance $400 million in existing debt and close a current credit line. Lee also will sign a 10-year lease on BH Media's real estate for a starting cost of $8 million a year.
As the sole lender to Lee, Berkshire still needs the business to survive to make a steady return. Lee will run 81 daily newspapers, including news outlets that it previously owned, such as the St. Louis Post-Dispatch and the Arizona Daily Starin Tucson.
“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 stated, when announcing the deal.
As recently as 2013, Berkshire had touted the long-term viability of local newspapers in explaining why it had acquired more than two dozen publications for $344 million.
"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," Buffett wrote.
Later, he would lament the loss of classified advertising revenue to sites like Craigslist, saying that newspapers were "toast."
Berkshire's sale comes as private-equity firms and hedge funds are buying up local newspapers and slashing costs.
New Media Investment Group, which is controlled by private-equity firm Fortress Investment Group, bought Gannett last year to form the biggest newspaper chain in the United States.
McClatchy Co. is negotiating a government takeover of its pension fund and warned that it may file for bankruptcy.
Alden Global Capital, a hedge fund known for slashing costs, became the biggest shareholder of Tribune Publishing Co. in November. The deal spurred reporters at the Chicago Tribune to plead for another company to buy the newspaper and save jobs.
With Buffett's sale, the industry loses one more billionaire who once had a benevolent view of the newspapers.