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Warren Buffett's Company Buys Omaha World-Herald

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WARREN BUFFETT
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OMAHA, Neb. — Billionaire investor Warren Buffett plans to buy his hometown newspaper company, bypassing his misgivings about the industry with a $150 million deal that will end one of the industry's last sizeable employee-ownership plans.

Buffett's Berkshire Hathaway also agreed to assume $50 million in debt to acquire the Omaha World-Herald Co., he told the company's flagship newspaper, The Omaha World-Herald. The amount employees will receive for each of their shares, which are not publicly traded, wasn't disclosed.

The purchase might be more sentimental than profitable for the Omaha-based Buffett, but he said in a statement Wednesday the World-Herald "delivers solid profits and is one of the best-run newspapers in America."

"I wouldn't do this if I thought this was doomed to some sort of extinction," Buffett told a morning meeting of World-Herald shareholders, who still must approve the deal at a special meeting Dec. 20.

Buffett did not immediately respond to an interview request from The Associated Press, but his comments contrasted with earlier observations about the newspaper industry.

Berkshire's chairman and chief executive previously indicated he would be unlikely to add to the company's newspaper holdings because of the industry's dwindling returns. Berkshire owns the Buffalo News and it has a sizable investment in the Washington Post Co.

Buffett told Berkshire shareholders two years ago that most newspapers face the possibility of unending losses. "They were only essential to advertisers as long as they were essential to the reader, and that is changing," Buffett said.

The World-Herald is certain to be a relatively small part of Berkshire, which generated a $2.28 billion profit in the third quarter on $33.7 billion revenue. But Andy Kilpatrick, who wrote "Of Permanent Value: The Story of Warren Buffett," says the investor doesn't buy companies if he doesn't believe the deal will be profitable.

"I think it's sentimental for him, but he doesn't do anything that doesn't make business sense," Kilpatrick said.

The deal includes daily newspapers the World-Herald owns in Grand Island, York, Kearney, North Platte and Scottsbluff, as well as in Council Bluffs, Iowa. The company also owns World Marketing, which provides direct marketing services in Omaha, Chicago, Atlanta, Dallas and Los Angeles.

The Omaha World-Herald Co. has about 1,600 employees, including about 650 at the flagship newspaper in Omaha. Spokesman Joel Long said The Omaha World-Herald has a daily circulation of 135,282 and a Sunday circulation of 170,381.

Whether the deal is good for the current employee-owners will depend on what they paid for their shares and how long they've owned the stock, but Long said such details of the ownership plan would not be publicly disclosed.

World-Herald CEO Terry Kroeger said the company's employee-ownership structure was restrictive and had forced the newspaper to repurchase stock from departing employees.

"We have repurchased the company about seven times since the employee-ownership plan was put in place," Kroeger said.

Outsell Inc. media analyst Ken Doctor said it's also hard to say whether Buffett is getting a good deal because the company isn't publicly traded, making it difficult to estimate its value. But he said he believes Berkshire is paying a low price for a newspaper company that is probably in better financial shape than many larger newspapers and has its own direct-marketing unit.

Developing strong marketing-services businesses may become a valuable part of the newspaper business model as advertising revenue continues to decline, Doctor said.

Buffett promised to stay out of editorial decisions at the World-Herald Co.'s newspapers and Berkshire Hathaway has a history of not making major changes at the companies it buys. Instead, Buffett prefers to buy well-run companies and allow them to continue operating in a similar fashion.

The Peter Kiewit Foundation, which owns about 20 percent of the World-Herald's stock, supports the sale to Berkshire. Executive Director Lyn Wallin Ziegenbein said the foundation's trustees believe Peter Kiewit would be pleased with the deal because it will ensure Omaha-based ownership.

Kiewit, who built a massive construction firm in Omaha, bought The Omaha World-Herald newspaper from the Hitchcock family in 1962 to preserve local ownership. It became one of only a few employee-owned newspapers in the U.S. after his death in 1979.

Kiewit "felt it was crucial to the viability – and the vitality – of a community to have a solid, locally-owned paper," Ziegenbein said. "And he had great regard for Warren Buffett."

Berkshire owns more than 80 subsidiaries, including clothing, insurance, furniture, utility, jewelry and corporate jet companies. It also has big investments in companies including Coca-Cola Co. and Wells Fargo & Co.

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Online:

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com

Omaha World-Herald: http://www.omaha.com