NEW YORK (Real Money) -- For years, Warren Buffett has said he is looking for elephant-size acquisitions for his holding company, Berkshire Hathaway (BRK.B) in order for them to move the needle at the $150 billion conglomerate. While this goal doesn't eliminate Berkshire making small acquisitions, the smaller deals are usually done by someone other than Buffett.
Yet Berkshire's recent 3% stake in micro-cap Lee Enterprises (LEE) is a direct Buffett move. Lee Enterprises publishes 52 daily and 39 Sunday newspapers, 300 weekly newspapers and niche publications in 23 states. Lee also provides digital infrastructure and digital publishing services for about 1,500 newspapers. The company was founded in 1890 and is based in Davenport, Iowa. We know this is a direct Buffet bet because over the past several months, Buffett has been buying newspapers left and right. His focus has been on small-town publications with little to no online presence.
Last month, Buffett agreed to buy 63 of Media General's (MEG) newspapers for $142 million. In addition, Berkshire also made a $445 million loan to Media General in exchange for 19.9% equity stake in the company. In addition to owning over 200 newspapers, Media General also owns 18 television stations and various websites. MEG currently has a market cap of $90 million and an EV of more than $700 million. Berkshire also got a seat on the board.
Buffett's publicly-stated reason for investing in newspaper is his belief that local small town papers can be very valuable if they focus on providing the news that everyone wants like sports and other local affairs. But because newspapers are so hated today, Buffett is picking up these assets on the cheap. Within a couple of years, Berkshire could very well be the largest owner of small-town papers in the U.S. And such centralized ownership could turn out to be a very decent bet.Lee Enterprises sports a market cap of $72 million and an enterprise value of more than $1 billion. While Berkshire's 3% equity stake is a financial rounding error for the company, Lee clearly now has a lender of last resort in Berkshire. Lee generates $170 million in annual EBITDA, making a transaction very doable even for Buffett's value demanding ways. The company owns a vast number of papers that Berkshire would be happy to own and Berkshire is likely is to make another investment in Lee in the near future. A simple offer to buy out the equity and take on the debt would give Berkshire immediate access to hundreds of publications, some of which Berkshire would probably want to divest.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV