Davenport, Iowa-based Lee Enterprises, Inc. has entered into a definitive agreement with Berkshire Hathaway to acquire BH Media Group’s (“BHMG”) publications, of which Warren Buffett is Chairman and CEO and The Buffalo News for $140 million in cash. Berkshire Hathaway is providing approximately $576 million in long-term financing to Lee at a 9% annual rate.
The proceeds from the Berkshire financing will be used to pay for the acquisition, refinance Lee’s approximately $400 million of existing debt, and provide enough cash on Lee’s balance sheet to allow for the termination of Lee’s revolving credit facility. Subsequent to the deal closing, Berkshire Hathaway will be Lee’s sole lender.
Serving communities in 10 states, BHMG owns the print and digital operations of 30 daily newspapers, as well as more than 49 paid weekly publications with digital sites and 32 other print products. BHMG had 2019 revenues of $373.4 million and adjusted EBITDA of $47.4 million.
Buffett said, “My partner Charlie Munger and I have known and admired the Lee organization for over 40 years. They have delivered exceptional performance managing BH Media’s newspapers and continue to outpace the industry in digital market share and revenue. We had zero interest in selling the group to anyone else for one simple reason: We believe that Lee is best positioned to manage through the industry’s challenges.”
Lee has managed BHMG’s publications since July 2018 under a management agreement. The transaction also includes The Buffalo News, Western New York’s premier news source, which is separately owned by Berkshire Hathaway. BHMG’s real estate (including permanently attached equipment) and cash are excluded from the acquisition.
The addition of Berkshire Hathaway’s robust portfolio of high-quality local publications will add significant size and scale to Lee’s operations, bringing its portfolio of daily newspapers to 81 from 50 and nearly doubling its audience size.
Mary Junck, Lee’s Chairman, added, “This is a compelling and transformative transaction for Lee. It both refinances our long-term debt on attractive terms and provides new revenue opportunities as well as operational synergies across an expanded portfolio. We have enjoyed a strong, long-term relationship with Berkshire Hathaway, which has been a significant investor across our capital structure for years.”
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The transaction is expected to drive an 87% increase in revenue, a 40% increase in adjusted EBITDA and immediately reduce leverage to 3.4x before synergies. Based on Lee’s work managing BHMG publications over the last 18 months, Lee expects $20-25 million of anticipated annual revenue and cost synergies.
As a result, Lee will benefit from a stronger financial profile and be positioned to de-lever more rapidly.
As part of the agreement, Lee will enter into a 10-year lease for BHMG’s real estate. The initial lease payment is $8 million annually, payable in monthly installments, with Lee assuming responsibility for the maintenance and expense associated with the BHMG property. Lease payments can be reduced to the extent BHMG real estate is monetized.
Kevin Mowbray, Lee President and CEO, shared, “Over the past 18 months, we have developed a strong bond and shared culture with the outstanding operators at BH Media. This highly collaborative relationship has driven digital and subscription revenue growth, margin expansion and continued innovation. We are confident we can achieve even greater success as one, integrated company.”
The acquisition includes the following daily newspapers and their digital operations:
- ALABAMA: Dothan Eagle, Opelika-Auburn News
- IOWA: The Daily Nonpareil in Council Bluffs
- NEBRASKA: Omaha World-Herald, The Grand Island Independent, Scottsbluff Star-Herald, The North Platte Telegraph, Kearney Hub, York News-Times
- NEW JERSEY: The Press of Atlantic City
- NEW YORK: The Buffalo News
- NORTH CAROLINA: Winston-Salem Journal, Greensboro News & Record, The News Herald in Morganton, The McDowell News, Statesville Record and Landmark, Hickory Daily Record
- OKLAHOMA: Tulsa World
- SOUTH CAROLINA: The Florence Morning News
- TEXAS: The Eagle in Bryan-College Station, Waco Tribune-Herald
- VIRGINIA: Richmond Times-Dispatch, The Daily Progress in Charlottesville, The Roanoke Times, Bristol Herald Courier, News & Advance in Lynchburg, Martinsville Bulletin, Danville Register & Bee, The Free Lance-Star in Fredericksburg, Culpeper Star-Exponent, The News Virginian in Waynesboro
SOURCE: Lee Enterprises
