A Tale of Two Warrens: Stephens and Buffett make newspaper bets at year-end 2011

It was the best of times, it was the worst of times, it was the age of wisdom…

Dickens might have been talking about Europe during the French Revolution.  But perhaps it also can be said that it is the age of wisdom when two of the nation’s most successful investors – Warren Stephens and Warren Buffett – make significant acquisitions in the newspaper industry.

Stephens, through a portfolio company called Halifax Media Holdings, bought the group of 16 community newspapers owned by the New York Times Co.  Buffett, meanwhile, added the Omaha World-Herald Co. to Berkshire Hathaway.

The two deals represent a vote of confidence for the industry, which has suffered through several years of declining ad revenue during the Great Recession.

Both men have made fortunes making bets on out-of-favor sectors.  The Stephens firm got its start investing in Arkansas highway bonds during the Great Depression, and later took public a small Arkansas retailer owned by Sam Walton.

Buffett has famously made investments in railroads and more recently in financial service companies when no one else would jump in.

While these were two of the highest profile transactions announced in the 4th quarter of 2011, they were by no means the only ones.

The sales of the San Diego Union-Tribune, the Chicago Sun-Times company, the Minnesota Sun group, the San Francisco Examiner and others helped to push newspaper M&A activity to its highest levels since the meltdown of the U.S. financial markets in early 2008.

In total, 71 dail­­­­y newspapers changed hands in 2011, close to the record-breaking years of 2005-2007. 

Times They Are A-Ch­angin’

Near the end of the year, the New York Times Co. entered into an agreement to sell its regional media group to Stephens’ Halifax Media, which was created in early 2010 with the acquisition of the Daytona Beach News-Journal.

The New York Times group consists of 14 dailies – most of them in the Southeast – and two non-dailies.  The dailies include five in Florida (Sarasota, Lakeland, Ocala, Gainesville and Winter Haven), three in North Carolina, two in Alabama, two in Louisiana, one in South Carolina and one in California.

The Sarasota Herald-Tribune, with circulation of 76,700, is the largest newspaper in the group.  The New York Times acquired most of these newspapers in the 1970s and 1980s.

Arthur Sulzberger Jr., chairman of the New York Times Co., said the deal will allow the company to “continue our transformation to a digitally focused, multiplatform media company.”

The Halifax team includes longtime community newspaper owner Rupert Phillips, who is one of the company’s managers and has a stake in Halifax through his family’s investment vehicle.

Phillips built companies that included as many as seven daily newspapers and numerous non-dailies.  One of these, the Leesburg (FL) Daily Commercial, he acquired from the New York Times in 1995.

Among its print properties, the New York Times continues to own its namesake newspaper, the Boston Globe and the Worcester Telegram & Gazette. 

The Oracle Speaks

“I wouldn’t do this if I thought this was doomed to some sort of extinction.”

So said Warren Buffett, the Oracle of Omaha, when he made a surprise appearance at a meeting of the Omaha World-Herald’s employee-shareholder group to announce Berkshire Hathaway’s acquisition of the company.

In a $200 million transaction, Buffett’s company agreed to acquire the last major employee-owned newspaper company in the U.S.

The deal includes the flagship Omaha World-Herald, the nation’s 49th largest newspaper by daily circulation; Omaha.com; daily newspapers in Kearney, Grand Island, York, North Platte and Scottsbluff, Nebraska; the daily Council Bluffs Nonpareil in Iowa; and World Marketing, a direct mail company with operations in Omaha, Chicago, Dallas, Atlanta and Los Angeles.

In announcing the sale, World-Herald CEO Terry Kroeger said Buffett’s purchase “presented a unique opportunity” to address the long-term capital needs of the company related to acquiring shares from retiring shareholders over time.

The Peter Kiewit Foundation also has a 20% ownership stake in the newspaper company.  Kiewit bought the Omaha World-Herald in 1962 from its founding family and set up an employee-ownership plan to preserve local ownership before his death in 1979.

The 81-year-old Buffett once owned the weekly Omaha Sun newspapers.  During his tenure, and with his journalistic input, the Omaha Sun won a Pulitzer Prize in 1973 for an expose on Boys Town, a refuge for homeless boys in Omaha.

Buffett currently owns the Buffalo News and has a stake in the Washington Post Co.

“I’m not comfortable without an honest-to-God newspaper in my hand,” the Oracle told the employee owners of the World-Herald.  

Suburban Sprawl

ECM Publishers, a major newspaper publisher in the Twin Cities area of Minnesota and Wisconsin, added the Minnesota Sun group to create a significant suburban/exurban cluster.  Following the acquisition, the combined newspaper operations will reach nearly 750,000 households weekly in the region.

ECM, based in Coon Rapids, is a family-owned concern that was founded by a former governor of Minnesota in 1976.  ECM publishes 15 newspapers and six shoppers in communities principally to the north of Minneapolis.  Total weekly distribution is approximately 340,000. 

The Minnesota Sun group, owned by American Community Newspapers, publishes 32 newspapers and two shoppers in suburban communities that largely ring Minneapolis and St. Paul and stretch further to the west.  Total weekly circulation is approximately 400,000.

“Opportunities of this magnitude rarely happen,” said Marge Winkelman, president and chief operating officer of ECM.

Earlier in 2011 American Community Newspapers also sold its suburban publishing operation in Columbus, Ohio.  The company still owns publishing groups in suburban Dallas and northern Virginia.

Black goes Back to Back to Back

Victoria, B.C.-based Black Press made several acquisitions in the fourth quarter to expand its U.S. newspapers holdings in the west.

Black Press president David Black reached agreement to buy the Peninsula Daily News in Port Angeles, Washington and the affiliated Sequim This Week from Horvitz Newspapers.

Separately, Black also acquired Olympic View Publishing Co., which publishes a competing newspaper in Sequim.

Black’s South Publishing in western Washington was already the largest community newspaper group in the Pacific Northwest.  In 2006 Black had bought Horvitz’ King County Journal Newspapers serving suburban Seattle communities; these became part of Sound Publishing.

In a third deal, Black Press led a consortium that acquired the San Francisco Examiner from Phil Anschutz’ Clarity Media.  The Examiner was once owned by William Randolph Hearst.

The San Francisco Examiner is a free daily with distribution each weekday and on Sunday.  Weekday distribution ranges from 75,000 to 190,000.

Black Press owns about 150 publications, most of them in Canada.  In the U.S., Black owns the Akron (OH) Beacon Journal, Honolulu (HI) Star Advertiser and others.

San Diego Sale

Two years after buying the San Diego Union-Tribune, Platinum Equity sold the newspaper to a local entrepreneur who built his wealth through hotel and commercial property management.

 Local business magnate Doug Manchester, along with radio executive John Lynch, formed MLIM, LLC to acquire the 143-year-old newspaper.  The Union-Tribune also has built a significant online presence through SignOnSanDiego.com and a top daily deal site.

Manchester has developed several hotels in San Diego, including the Grand Del Mar.  He also is behind the proposed Navy Broadway Complex, a $1.3 billion project that would open in 2016.

Lynch, a one-time Pittsburgh Steelers linebacker, was a part owner of Noble Broadcast Group and founded Broadcast Company of America.

Chicago Muscle

A group of heavyweights from the Chicago investment community bought the parent of the Chicago Sun-Times and affiliated newspapers in the city’s suburbs.

The new group acquired the newspapers, which includes eight dailies, from the original investors who purchased it out of bankruptcy two years ago.  The lead partner from the original group died unexpectedly in March 2011.

Tim Knight, a former Tribune Co. executive and publisher of Newsday, was tapped to lead the company.

The acquiring company, Wrapports LLC, is a who’s who of Chicago business leaders.  It includes Michael Ferro Jr., chairman of Merrick Ventures; William ‘Beau” Wrigley Jr.; John Canning Jr., chairman of Madison Dearborn Partners; and Michael Sacks, chief executive of Grosvenor Capital Management.

Jeremy Halbreich, former president of the Dallas Morning News and founder of American Consolidated Media, successfully led the Sun-Times Media Group through bankruptcy and had remained as chairman and CEO for the original investor group.  He stepped down from those positions following completion of the sale.

Other News

Former USA Today publisher Craig Moon bought four weekly newspapers in the Lake Norman region north of Charlotte, North Carolina.

Local owner Alain Lillie sold the cluster, but will retain ownership of three weeklies serving communities in the south Charlotte area.

Moon retired from USA Today in 2009.  Another former Gannett executive will run the Lake Norman newspapers for Moon.

 Independent owner David Jackson sold the Ludington (MI) Daily News and two non-daily newspapers to Larry Perrotto’s Community Media Group.  Jackson had owned the daily since 1985 and acquired the other two newspapers in 2000.