Investing

Newspaper industry loses one of its last big backers in Buffett, who delivered Washington Post as a kid

Key Points
  • Berkshire Hathaway is selling its newspapers for $140 million. 
  • Warren Buffett has been investing in newspapers since the 1960s. 
  • Buffett said in 2013 that small local newspapers were in a better position than big-city papers. 
Warren Buffett
Daniel Zuchnik | WireImage | Getty Images

Warren Buffett, a life-long newspaper fan and booster, is giving up on his bet that local news would help protect papers in small to medium-sized cities.

Berkshire Hathaway is selling its 31 newspapers to Lee Enterprises for $140 million in cash.

The deal includes Buffett's home-town daily, The Omaha World-Herald, and The Buffalo News, a longtime Berkshire property.

After telling shareholders in 2009 that "unending losses" were possible for some newspapers, and predicting Berkshire would not buy "at any price," Buffett changed his mind just a few years later.

Berkshire bought dozens of small daily and weekly newspapers, mostly through a $142 million deal with Media General in 2012.

In a 2013 "Squawk Box" interview, Buffett acknowledged that newspapers were in trouble as they faced strong competition from internet news sources. But, he said, big-city newspapers were in a lot more trouble than smaller papers.

"The local community paper is really indispensable to the people of the community," Buffett said.

He called local papers a "good business currently," but a "declining" business. "The rate of decline will depend on how indispensable we make ourselves," he said.

Buffett's love of newspapers goes way back. He delivered The Washington Post as a child, bought a very profitable Post stake in the 1970s, had a close friendship with Post publisher Katherine Graham, and reads five newspapers daily.

In 1968, Berkshire bought The Omaha Sun. In 1973, it became the first weekly to win a Pulitzer Prize when it was honored for an investigation into the finances of Boys Town, a local charity. Buffett became close friends with the Sun's Stan Lipsey, beginning a 50-year relationship. Buffett later said, "We had unbelievable fun together. We jogged together, we ate ice cream, and we ran the News together."

When Berkshire bought The Buffalo News in 1977, he asked Lipsey to help run it. He helped the paper survive a circulation war with a rival in the 1980s.

Some skeptics suggested Buffett's bet on local newspapers in the 2010s was prompted more by his love of the business than a desire to make money for Berkshire.

Asked at the 2013 Berkshire shareholders meeting to explain why he was buying into a small, struggling business rather than putting the company's money into something bigger with a higher rate of return, Buffett offered a lengthy response about tax advantages and his expectations for a "decent" return, while acknowledging that any profits wouldn't "move the needle" much for Berkshire.

When Buffett was done, his partner Charlie Munger added his own interpretation, prompting laughter from the audience. "Well, I think what you're saying is that it's an exception and you like doing it."

Buffett's retreat from newspapers does have one redeeming feature for Berkshire. The deal includes a $576 million loan to the buyer to help pay for the purchase and to refinance its long-term debt. The annual interest rate for the 25-year loan: a hefty 9%.

CNBC's Warren Buffett Archive has a collection of video clips of Buffett talking over the years about newspapers: "Buffett's complicated relationship with the newspaper business."