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This seems like a pretty good deal if you go beyond the headlines of Berkshire investing in a declining industry. 1. All the newspapers Berkshire Hathway is bu
by ankeshk 14y ago
This seems like a pretty good deal if you go beyond the headlines of Berkshire investing in a declining industry.
1. All the newspapers Berkshire Hathway is buying are modestly profitable according to Poynter Institute. They didn't buy the Tampa Tribune newspaper which is struggling.
2. Berkshire is also loaning $400 million to Media General at 10.5% interest. And providing a $45 million credit line. The interest on that loan will go a long way towards paying for the newspapers.
3. And on top of this, Berkshire is getting stock warrants equivalent to almost 20% of Media General. Media Generals stock prices are already up by 33%.
In essence, Berkshire has put in $600 million which will earn them about $60-80 million per year (from newspaper revenue and interest on the loan.) Gives them 20% of a media company with a market cap of $90 million and room to rise higher. And leaves with a $400 million loan which has to be paid back to them eventually.
This is a bloody genius deal.
- netcan 14y agoObviously the devil's in the details. But it seems more like fair company at a great price than great company at a fair price. The latter is what Berkshire is known for. If it's the former type of a deal it's interesting: Maybe prices are so good he couldn't resist. Maybe these newspapers do represent a great "company."
- _delirium 14y agoBerkshire has been doing quite a bit of the first category too lately. They have such a gigantic cash pile that they can operate as kind of a private-sector bailout fund, bailing out companies that, with Berkshire financing, could survive past a rough spot, and extracting excellent terms as a result (because the companies are often in a short-term position that gives them little room to refuse the offer). For example, their 2008 investment-with-some-loan-characteristics to Goldman Sachs in the middle of the financial crisis had a similar interest/equity structure, where they were granted special 10%-dividend-paying shares.
- bdunbar 14y agothey can operate as kind of a private-sector bailout fund, Or, as we used to call it: Buy low, sell high.
- _delirium 14y agoThat's not really what they're doing, though; it's buying on special, negotiated terms, with bond-style percentage-of-investment payouts in return.
- netcan 14y agoMaybe it is because of that stock/bond blurring you mention. There's really no such thing as a great stock.