Warren Buffett expresses interest in Tribune Co.'s The Morning Call in Allentown, Pennsylvania, following trend of investing in smaller, community-oriented newspapers
December 14, 2012
– Tribune Co.'s imminent emergence from an epic bankruptcy has fueled a flurry of speculation about the future of one of the country's largest diversified news media empires.
Weighing in on the matter Thursday was one of the world's richest men, Warren Buffett. The Oracle of Omaha, as he is known for his legendary financial prowess, expressed interest in one of Tribune's newspapers. Which one?
You are reading it.
Asked if his company, Berkshire Hathaway of Omaha, Neb., might buy The Morning Call, Buffett responded: "Allentown is our kind of place."
Chicago-based Tribune -- which also owns the Chicago Tribune newspaper, the Los Angeles Times and the Baltimore Sun, as well as other newspapers and TV stations -- is expected to emerge from Chapter 11 bankruptcy protection by the end of the year. The new owners, a group of investment companies, have taken initial steps toward divesting themselves of print operations, according to news reports quoting anonymous sources.
Some high-profile names have emerged as potential buyers. Among them is the Rupert Murdoch-led News Corp., said to be interested in the chain's larger papers, particularly the Chicago Tribune and Los Angeles Times, according to some reports. Another is Freedom Communications, which owns seven newspapers, including the Orange County Register in California.
The comments from Buffett, the world's third-richest man according to the most recent ranking by Forbes magazine, suggests yet another, intriguing possibility.
"We haven't heard anything from the Tribune Co.," Buffett told The Morning Call after the paper emailed him an inquiry, "but if the phone rings, I'll answer."
Of course, there is no guarantee that it will.
The new owners of Tribune are led by senior creditors Oaktree Capital Management, JPMorgan Chase and Angelo, Gordon & Co., and they have said very little about their plans.
But Thursday, Thomas Fuller, a senior managing director at Angelo Gordon, had this to say: "As far as I know, there is no plan to sell off the newspapers."
Efforts to reach Oaktree, the biggest Tribune stakeholder with 22 percent of the equity, and JPMorgan Chase, which has a 9 percent stake, were unsuccessful. Angelo Gordon also has a 9 percent stake.
Tribune Co. also had no comment, said Gary Weitman, a Tribune spokesman.
The 82-year-old Buffett did not elaborate on what he sees in the Lehigh Valley's largest media company. "Let's just wait until I get a call [from Tribune]," he said in a follow-up email response.
But industry analysts say The Morning Call -- a dominant newspaper in a medium-size metropolitan area with limited TV competition -- fits the profile of other Buffett newspapers.
"I would take him real seriously," Rick Edmonds of the Poynter Institute, a news media research center in Florida, said of Buffett. "His comments are brief, but it translates into he is interested in buying the paper."
Buffett made his aversion to bigger newspapers in more competitive media markets clear in an interview with Daily Beast media critic Howard Kurtz in June. He said he wouldn't be interested in Tribune's larger newspapers -- the Los Angeles Times and Chicago Tribune -- if the entire group went on sale because they are too large, with a readership that doesn't share a common sense of community.
"I don't know exactly what you would do with the Tribune Co.," he told Kurtz.
After once dismissing the newspaper business as facing "nearly unending losses," Buffett's Berkshire Hathaway began investing in smaller, community-oriented newspapers earlier this year, acquiring 63 Media General newspaper properties in June, including the Richmond (Va.) Times-Dispatch.
Buffett's company also operates The Buffalo News, which it purchased in 1977, and the Omaha World-Herald, the 130,000-circulation newspaper that serves his birthplace and is now considered the Berkshire Hathaway newspaper division flagship. Berkshire Hathaway is also a major stockholder in The Washington Post.
In a May letter to employees of Berkshire Hathaway's newspaper properties, Buffett professed his love for the business and promised not to meddle with news coverage, except to continue the focus on local news. He said he would probably purchase more newspapers and "will favor towns and cities with a strong sense of community. ... If a citizenry cares little about its community, it will eventually care little about its newspaper."
The letter continued: "In a very general way, strong interest in community affairs varies inversely with population size and directly with the number of years a community's population has been in residence. Therefore, we will focus on small and mid-sized papers in long-established communities."
The Morning Call is the 77th-largest newspaper in the country, according to the Alliance for Audited Media, formerly known as the Audit Bureau of Circulations. It had average weekday circulation of 83,654 in the six-month period ending Sept. 30.
On Sunday, the most profitable day because that's when the paper has the most advertisements, its circulation was 120,127.
"The only reason Buffett has been interested in newspapers is that they got so cheap so quickly," said industry analyst John Morton of Morton Research in Silver Spring, Md. "When you get the prices as low as they are now, newspapers in the smaller communities have enough cash flow to make it an interesting investment. He has become convinced of that."
Ken Doctor, a former newspaper executive who writes the Newsonomics blog, said Buffett is willing to give his newspaper investments time to pay off as they develop new sources of revenue, such as paid online subscriptions.
"It's a long-term play," he said. "This is going to take three to five years. ... It's going to take patience, and he is willing to be patient because he has the capital."
Tribune, which acquired The Morning Call as part of its acquisition of the Times Mirror Co. in 2000, entered bankruptcy four years ago. The move effectively ended the brief, rocky reign of Chicago real estate mogul Sam Zell. The Morning Call's founders and longtime owners, the Miller family, sold the newspaper to Times Mirror in 1985.
Before Thursday, the most recent substantive public comment from Tribune's new owners came from Howard Marks, who heads Los Angeles-based Oaktree. Speaking to the Chicago Tribune in October, he suggested that Tribune Co. could remain intact for some time.
"It's safe to say that nobody knows today what actions are going to be taken," Marks said. "Nobody knows for sure who the CEO is going to be and what he or she is going to recommend, and what the board is going to approve and what value will arise. The most important thing is that these decisions are not predetermined."
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