Warren Buffett just got out of the newspaper business

Warren Buffett’s Berkshire Hathaway is ditching its newspaper business.

Lee Enterprises will buy Berkshire’s 31 publications across the country for $140 million in cash. Berkshire also will provide the long-term financing for Lee’s existing debt.

Expected to close in mid-March, the acquisition includes BH Media Group publications, such as Buffett’s hometown paper, the Omaha World-Herald. The Buffalo News, which Berkshire also owns but is separate from BH Media Group, was also sold to Lee.

The acquisition expands Lee’s roster of daily newspapers from 50 to 81 and increases the company’s revenue by 87%, according to a statement from the firm. The Davenport, Iowa, company’s stock rose 70% on the news.

Lee will receive $576 million in long-term financing from Berkshire at 9% interest, also using the funds to refinance $400 million in existing debt and eliminate a $23 million revolving credit facility, according to the statement. The transaction will cut the newspaper chain’s debt slightly.

“This is a compelling and transformative transaction for Lee. It both refinances our long-term debt on attractive terms and provides new revenue opportunities as well as operational synergies across an expanded portfolio,” said Lee Chairman Mary Junck.

Before rebounding Wednesday, Lee’s stock had sunk more than 50% in the past year.

Doug Arthur, a media analyst at Greenwich, Connecticut-based equity research firm Huber Research Partners, said Berkshire’s financing reassures the market since Buffett is unlikely to “pull the rug from under” Lee Enterprises.

“It’s a friendly seller, it’s a good price, they know the properties so they will be able to able to wring out more savings, and they’ll be able to cover their financing,” he said.

A changing industry

Buffett, Berkshire’s chairman and CEO, said he believes “Lee is best positioned to manage through the industry’s challenges.” In 2018, ad revenue for newspapers fell 13% and US newspaper circulation hit its lowest level since 1940, according to Pew Research Center.

“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,” Buffett said in the statement.

Buffett was deeply pessimistic last year when discussing the state of the newspaper industry in an interview with Yahoo Finance.

“It went from a monopoly to franchise, to competitive to toast,” he said, adding of newspapers, “they’re going to disappear.”

Lee Enterprises has drawn criticism from employees for layoffs across its properties. The company cut its full-time equivalent worker headcount by 10.9% in 2019 and by 12% in 2018, according to securities filings.

“We’re profoundly disappointed in Warren Buffett,” Todd Cooper, a reporter at the Omaha World-Herald and the president of the newsroom’s union, told CNN Business. “He will be financing Lee Enterprises’ dismantling of local newspapers.”

Berkshire didn’t immediately respond to requests for comment. A spokesperson for Lee said the company had no comment beyond the release.

Before the deal, the two firms were already in business together. In June 2018, Lee Enterprises announced an agreement to run Berkshire’s newspapers and digital operations in 30 markets, according to a press release.

“Unlike in other media consolidations, we know each other,” Lee CEO Kevin Mowbray said in a letter to BH Media employees.

“Over the last year and a half, those of us in Lee have admired the quality ways you strive to serve your readers, advertisers and communities. In the days and months ahead, we hope you will feel the same way about the rest of Lee.”