Updated with Warren Buffett quotes on newspaper business

NEW YORK ( TheStreet) -- After betting on America's banking system during the financial crisis and unveiling a new position in General Motors ( GM) that backs a resurgent U.S. auto industry, Warren Buffett is adding to one of his favorite "old school" America bets, buying into another struggling local newspaper company.

On Thursday, Berkshire Hathaway ( BRK.A) said it is buying most of the newspapers of Media General ( MEG) for $142 million or a near 100% premium to the company's market cap as of Wednesday trading. While the deal is obviously not the $22 billion acquisition that Buffett recently revealed had been under consideration earlier in the year -- nor is it a shot of Berkshire's M&A "elephant gun" -- it is an unequivocal bet on the newspaper industry and the ability of locally based papers with a long-time audience to generate profits and withstand the digital news onslaught.

Warren Buffett

The move follows Berkshire's acquisition of the Omaha World-Herald in late 2011 and its long-time top share stake in The Washington Post ( WPO).

Berkshire Hathaway is buying Media General's 63 daily and weekly newspapers throughout southeastern states like Virginia, North Carolina, South Carolina and Alabama and will provide a $400 term loan and $45 million in revolving credit to the company, which has lost over 90% of its value in the last five years on waning earnings and a growing debt burden.

With the loan and credit line, Media General will be able to repay its existing bank debt due in March 2013 and refinance into arrangements that expire in 2020, the company said in a statement. Shares of Media General surged over 40% in Thursday afternoon trading.

A subsidiary of Berkshire Hathaway, BH Media Group, will purchase all of the newspapers owned by Media General, with the exception of its Tampa-based operations, and will take warrants for roughly 20% of the company's outstanding shares.

"In towns and cities where there is a strong sense of community, there is no more important institution than the local paper," said Warren Buffett in a statement announcing the deal. "The many locales served by the newspapers we are acquiring fall firmly in this mold and we are delighted they have found a permanent home with Berkshire Hathaway."

Already, Buffett has lent his hand to support the struggling newspaper industry. Last November, Berkshire bought the Omaha World-Herald for $200 million, buying up Buffett's hometown newspaper. About the deal, Buffett was quoted by the World as saying, "I wouldn't do this if I thought this was doomed to some sort of extinction."

Buffett newspaper experience grew from a childhood paper route to a multi-decade service on The Washington Post's board that ended in May 2011. He also owns The Buffalo News. Although the "Oracle of Omaha's" investments may be clouded by respect for America's fourth estate, his parents met while working at The Daily Nebraskan he may still be targeting "moated" business with a top market presence that's proven to be a winning formula for Berkshire Hathaway.

" The Washington Post is a local newspaper... This kills people in the news business -- the most important news in the newspaper are the ads," Buffett told Vanity Fair in a recent profile. In buying shares in The Post in the early 1970s and his recent print acquisitions, Buffett is targeting local print market leaders. The challenge will be helping The World and his newly acquired Media General papers build sustainable revenue in the digital market, where most content is free.

"I don't know of any business plan that has sustained itself that charges in one version and offers the same version free to people," Buffett said earlier in May at Berkshire Hathaway's annual meeting.

Still, Buffett is lending his hand to an American institution, in a move that matches his supportive investments into the U.S. banking system at the height of the financial crisis -- and a recent bet on the recovering auto industry.

While Berkshire's investments in preferred shares of financial heavyweights like General Electric ( GE) and Goldman Sachs ( GS) turned out to be wildly profitable and since have been redeemed by both companies, Buffett will face a challenge in turning Media General around, even after lending his financial support to the company.

Media General's sales have fallen steadily in the past four years and the company hasn't turned a profit since 2007. In that time span, Media General's shares have lost most of their value, falling from over $40 in 2007 to just $3.14 as of Wednesday's close.

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"These newspapers are great institutions and powerful brands in their respective markets," said Terry Kroeger, president of BH Media Group, the Berkshire unit that will be responsible for the investment. The Media General newspapers will be added to BH Media Group's portfolio of assets that include the Omaha World-Herald. Kroeger joined Berkshire Hathaway through its acquisition of the Herald.

"Selling our newspapers represents a monumental change for us. We're very happy that our newspapers will become part of Berkshire Hathaway's BH Media Group, a company with a strong commitment to local news leadership and community engagement," said Media General chief executive Marshall N. Morton in a statement. The deal accelerates Media General's on its broadcast television business and new opportunities like digital content and Mobile DTV, added Morton.

Buffett's biggest newspaper investment, his stake in The Washington Post Company, has fallen roughly 20% in the last year as its Kaplan education unit struggles and print sales in its media unit deteriorate. Still, Buffett isn't likely to depart his 27%-plus stake in the company's shares anytime soon.

>>View Warren Buffett's Portfolio

In Vanity Fair's April feature on The Washington Post Buffett was quoted as saying that it's unlikely he'll ever sell his stake. "I can afford to be sentimental," said Buffett.

Thursday's deal to buy the newspapers and provide financial support to Media General, and his previous acquisition of the Omaha World-Herald, may signal that this sentiment will extend to more deals throughout the newspaper industry.

"I'm not comfortable without an honest-to-God newspaper in my hand," Buffett told staff at The World in an impromptu November address.

For more on Warren Buffett's deal making see why Berkshire's elephant gun could be targeted at utilities. For more on Buffett's recent investments, see why Warren Buffett's latest bet on America is GM.

-- Written by Antoine Gara from New York.