It has been very compelling to see Warren Buffett’s Berkshire Hathaway (BRKA) acquiring local newspapers at an accelerated rate. Much has been made of the steep declines in the newspaper business, as most companies have been unable to adequately monetize their assets on the shift to digital distribution. Buffett is focusing on local, community oriented newspapers that have few competitors. I believe that Buffett is going to take advantage of scale by accumulating a large network of assets, which will allow him to aggregate procurement and other costs, so that ultimately his company will be the low cost operator. This article also mentions that Gannett (GCI) has EBITDA margins in excess of 18%, but because Buffett is using the financial strength of Berkshire Hathaway, his newspaper company won’t have the drag of high cost debt on its operations. When you combine being the low cost leader with little to no interest expenses, and then you look at an industry which is likely to see substantial opportunities for further consolidation, one can see what has Buffett attracted to the sector. Obviously Buffett loves newspapers and he loved trains when he bought Burlington Northern. To think that his motives aren’t economic but emotional when it involves Berkshire Hathaway is not giving enough credit to him and his sterling capital allocation track record.
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