- Selling Berkshire Hathaway’s ExxonMobil stake gives Warren Buffett $3.7 billion in cash to use for an acquisition.
- Tribune Publishing, which operates The Los Angeles Times, The Baltimore Sun and The Chicago Tribune, would be a logical acquisition for Berkshire Hathaway.
- Berkshire Hathaway has made extensive newspaper purchases in recent years. In his 2013 letter to shareholders, Buffett revealed that he had spent $344 million to buy 28 daily newspapers.
- In the same letter, Buffett revealed that he thinks that newspapers can still be a viable business—if they are properly managed.
- Tribune is a very cheap company; it had a market capitalization of $497.29 million on April 2, 2015.
- One of Tribune’s properties, The Los Angeles Times, is the largest circulation metropolitan daily in the U.S. with a weekday circulation of 1.5 million readers.
It looks as if Warren Buffett is in the market for acquisitions again. America’s richest investor has revealed that he is building up his cash reserves for something big, probably an acquisition.
On March 2 the Sage of Omaha told CNBC that his Berkshire Hathaway (NYSE: BRK.A) had sold all of its ExxonMobil (NYSE: XOM) shares in the fourth quarter of 2014. The selloff of around 41 million shares gives Buffett around $3.7 billion in cash to play with. The most intriguing aspect of Buffett’s actions from Berkshire fan’s standpoint is the statement Uncle Warren made to CNBC about his reason for selling Exxon, which he called a wonderful company.
“We thought we might have other uses for the money,” Buffett said. That sure sounds as if Buffett thinks there is a much better investment than ExxonMobil out there. One has to wonder if he plans to buy a stake in another company or add a new member to the Berkshire Hathaway family.
My guess is that Buffett is planning an acquisition, and I think I have identified his most likely target. It is Tribune Publishing (NYSE: TPUB), the newspaper publishing division of Tribune Media (NYSE: TRCO), which was spun off into a separate company last summer.
Why Uncle Warren Loves Newspapers
Buffett famously loves newspapers and has been willing to bet big on them in the past. Berkshire spent $344 million to acquire 28 daily newspapers in 2011 and 2012. One of its subsidiaries, BH Media Group, now owns 71 newspapers and other publications, including several big city dailies.
In his March 1, 2013, letter to shareholders, Uncle Warren wrote that the thinks newspapers can still be profitable if their Internet operations can be switched to a “pay format.” He did not elaborate on what a pay format is, but he held up The Arkansas Democrat-Gazette as a potential model for the industry. That paper requires visitors to its website to answer survey questions in order to read some of its content.
Buffet also went to some length to explain why he and his sidekick Charlie Munger still believe in newspapers, as stated in the same letter.
“Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time,” Buffett wrote.
He went on to blame newspaper industry trends as reducing news content and the frequency of publication for drops in circulation. Buffett also stated that he thinks good management could turn most newspapers, including big city dailies, around and make them profitable.
Why Uncle Warren Might Want Tribune
Buffett loves newspapers and he loves a bargain, which could make Tribune Publishing hard for him to pass up. Tribune Publishing is currently a very cheap company; on April 2, 2015, it had a market cap of $497.29 million and a share price of $19.42.
- The largest metropolitan daily newspaper in the United States, The Los Angeles Times, which claims to have a daily print circulation of 1.5 million and a Sunday circulation of 2.6 million. The Times also attracts 22 million unique visitors to its website a month.
- The Chicago Tribune, which reported a weekday circulation of 439,731 and a Sunday circulation of 789,915 on May 1, 2014.
- The Baltimore Sun Media Group, which publishes three daily newspapers including The Baltimore Sun, and 21 weekly newspapers. The Sun Media Group claims to have a Sunday circulation of 296,000.
- The Orlando Sentinel, which claims to have a Sunday circulation of 258,000.
- The Sun Sentinel in Fort Lauderdale, Florida, which claims to have a Sunday circulation of 218,000.
- The Morning Call, a daily in Allentown, Pennsylvania, which claims to have a Sunday circulation of 128,000.
- America’s oldest continuously published newspaper, The Hartford Courant, which claims to have a Sunday circulation of 181,000.
- The Daily Press, a daily newspaper in Newport News, Virginia, that claims to have a Sunday circulation of 85,000 and a combined readership of 357,000. The Daily Press would fit in well with BH Media’s existing holdings in Virginia, which include The Richmond Times Gazette and The Roanoke Times.
- Three of the biggest and most iconic names in American journalism—The Baltimore Sun, The Los Angeles Times and The Chicago Tribune—and all of the credibility and prestige they would bring to Berkshire.
It would be hard for a newspaper lover to pass all that up, particularly one who thinks he’s figured out how to make money in the industry. Buying the Tribune papers and turning them around would prove Buffett’s thesis that newspapers are still relevant. Tribune also seems to fall in line with something else Buffett stated in his 2013 letter:
“We can address the second point easily. Charlie and I love newspapers and, if their economics make sense, will buy them even when they fall far short of the size threshold we would require for the purchase of, say, a widget company,” Buffett wrote. The economics in this deal seem to make sense, and some of the numbers associated with Tribune look a lot bigger than a widget company.
Beyond that, Tribune Publishing meets some of the classic Berkshire criteria of a good company going through a rough patch that’s undervalued by the market. Like some previous Berkshire acquisitions, such as Fruit of the Loom, the Tribune papers are strong brands that seem to be suffering from poor management.
My prediction is that Buffett will make a bid for Tribune Publishing sometime this year. It seems like too tempting a bargain for him to pass up, and it operates in an industry he is passionate about: newspapers.