The Buffalo News, after 42 years as part of Warren Buffett's Berkshire Hathaway, is being sold to Lee Enterprises, an Iowa-based chain that owns 50 newspapers, mainly in the Midwest.
With the $140 million deal, announced Wednesday morning, Lee will become only the third owner in the 140-year history of The News.
Analysts said they were not surprised by the deal. Lee has managed all of the 30 newspapers owned by Berkshire, except for The Buffalo News, since the summer of 2018.
It marks the end of Buffett's foray into the newspaper business, which began with his purchase of The News in 1977 and accelerated over the past decade with deals that built its BH Media business into a group of newspapers that included the Omaha World-Herald in Nebraska and the Tulsa World in Oklahoma.
“My partner Charlie Munger and I have known and admired the Lee organization for over 40 years,” Buffett said in a statement. “They have delivered exceptional performance managing BH Media’s newspapers and continue to outpace the industry in digital market share and revenue.
"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. No organization is more committed to serving the vital role of high-quality local news, however delivered, as Lee. 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 through the financing agreement.”
News Publisher Warren T. Colville said, "The Buffalo News' commitment to covering our community is unwavering, and we look forward to continuing that tradition under our new ownership."
The deal extends a wave of consolidation that has swept through the newspaper industry, which is being battered by falling advertising revenue as competition from online providers, such as Facebook and Google, increases.
In response, newspaper companies have been merging aggressively, attempting to better compete by getting bigger. "That makes for more efficient administration," said Rick Edmonds, a media business analyst at the Poynter Institute.
Mary Junck, Lee's chairman, called the purchase of BN Media a "compelling transaction" that builds on the familiarity Lee gained with the BN Media newspapers during its management relationship.
"It provides new revenue opportunities and achievable synergies," she said during a conference call. "It deepens a long relationship with Berkshire Hathaway."
Lee, which also owns papers in St. Louis and Tucson, Ariz., among other markets, said it expects cost savings of about $25 million over the next two years because of the deal. About $5 million of the savings will come from efficiencies stemming from the management of digital advertising and subscriber programs, while it expects to generate about $20 million in cost savings, mainly from lower administrative expenses.
Once the deal closes, likely in mid-March, Lee will have increased its revenues by 87% and built a stable of 81 newspapers, adding "significant size and scale" to the company, said Kevin Mowbray, the company's president and CEO.
Mowbray said Lee sees "lots of opportunity" in boosting digital advertising at the BH Media papers, noting that it launched new initiatives to increase digital revenue after it took over management duties. Junke called it a "digital-first mindset."
"We're really only into the first 18 months of Lee's playbook on circulation and audience revenue," Mowbray said. "We've got two to three more years of pricing action and revenue growth there."
Even with the sale, Berkshire will retain important financial ties to Lee. As part of the deal, Berkshire is providing Lee with $576 million in long-term financing, carrying an interest rate of 9%. That will allow Lee to refinance its $400 million in existing debt and save about $5 million a year in interest expense.
Lee also will sign a 10-year lease deal for BH Media's real estate, which will provide Berkshire with payments totaling $8 million annually, while Lee assumes responsibility for maintenance and expenses associated with those properties.
Lee's stock rose 67% to $2.10 on Wednesday after the deal announcement.
The Buffalo Evening News was founded by Edward H. Butler in 1880. It was owned by the Butler family until Berkshire Hathaway’s 1977 purchase.