MEG), he got more than the newspapers. Buffett loaned Media General millions, at a 10.5% interest rate, and took a 20% ownership stake in the company via penny warrants. Simply put, he got a sweet deal. In typical Buffett fashion, he wins even if he loses. Maybe his bet on small-town newspapers will end up flat or fizzle, but he still managed to effectively loan shark Media General. Here's a company bleeding cash and losing money (about $3.68 per share) looking to transform itself. It has about $12 million in cash and more than $658 million in debt. Buffett takes dying newspapers off of Media General's hands as it embarks on efforts to step into the digital century. Good luck. Keep an eye on Lee Enterprises ( LEE - Get Report), and not because you should buy the stock. It's in a situation that's pretty similar to Media General. It loses money, but has even more debt - close to $1 billion worth.
Earlier this year Buffett took a small stake (3.2%) in Lee. Shortly before this move, the company emerged from bankruptcy. It's still on the hook for the debt, but at elevated interest rates. Can you see the writing on the wall? Dying industry. Desperate company. There's a chance it could turn things around. If it does -- and small-town newspapers survive and thrive -- Buffett comes out looking like the value investing genius he's well known for. But, even if the bet turns sour, Buffett still wins. Give these firms another chance at life, collect some interest, watch the stock price bounce (often as a reaction to your involvement) and make a load of cash whether the alleged investment thesis wins out or not. If you follow the media coverage of Buffett's small-town newspaper activity, however, all you hear about is the investment thesis. Every headline and every lead deals with Buffett's belief that small-town newspapers have a future. It's a feel-good story. It's likely to prompt investors, particularly those in awe of Buffett, to jump into a stock like LEE or maybe something similar like Journal Communications ( JRN). While it probably makes more sense to not proceed at all, if you do, move forward with caution. You're not Warren Buffett. You cannot walk into a company, buy a few millions shares and then turn the screws by scooping up warrants or handing out a multi-million dollar high-interest loan. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage. Follow @RoccoPendola