Buffett’s Bid for Media General’s Newspapers Harvard Case Solution & Analysis

A).

The financial situation at Media General in early 2012 was not comparatively profitable. The company petted 18 television stations and published 64 newspapers. This paper is based on the circulation of the largest newspaper. The company has engaged in the business of newspaper, television broadcasting and digital businesses. The company was primarily serving the southeastern U.S.

The company was listed in the New York stock exchange, and the company, Class A shares, are enumerated in the NYSE. The company has both classes of shares class A and class B. Class A shares lesser right than class B shares, whereas, Class B shares had similar cash flow and dividend rights as the Class A shares. The company provides stock option to its management for the purpose of managements incentives. In 2011, the company’s top seven executives earned $6.1 million in compensation. While officers and directors held 2.42 million Class A shares and Class B shares of 0.47 million.

It was analyzed after peaking at $983 million in 2006, total revenue fell to $616 million in 2011 and from that point forward the decline was observed, and the decline varied by line of business. The broadcasting of the enterprise went down to 17% from 2007 till 2011 and the newspaper business was down by 43%, whereas, the company’s operating profit in the year 2012 of the business was declined. The main purpose of declination of the company was due to the cost associated with the generation of the revenue. The cost incurred in the television broadcast business is 77% average of 2006 till 2011, whereas, the cost incurred in the digital business is approximately 98% average from 2006 till 2011. The main reason with both businesses is the cost incurred for the generation of the revenue is much higher.

The company should not divide the business as both businesses have less revenue plus the digital business cost is much higher than other business Therefore, if the enterprise divides this business, then it will make the digital media business bankrupt and the cost of bankruptcy also affect the television broadcast business.

B).

The offer proposed to Media General was acquiring 63 daily and weekly newspaper and their real estate holdings for $142 million in cash. The deal proposed by Media General excluding all pensions and other benefits obligation for the paper as well as Tampa Tribune. The assets valuation of Tampa Tribune is about $ 30 million according to some analyst.

The offer proposed by Berkshire would be more beneficial for the company as according to the calculation the value of the newspaper business is around $145 million which is $3 million higher than the proposed amount. Although the proposed value is lesser than the calculated forecasted value but still, the offer of Berkshire is better for the company.

The company should accept the offer of Berkshire. The company is already in high debt, and it would be possible it would go bankrupt if it does not take the deal. The credit agreement deal from Berkshire would provide a $400 million term loan and $ 45 million revolving credit facility, the term loan would have an interest of 11.5%. Thereby provided $354 million of cash to Media General with the maturity period of eight years. The offer would help the company to reduce its debt as the company had to repay $225 million of the term loan within eight days, or the company had to trigger a default on the amended loan agreement.

C).

The calculation of forecasted cash flow is shown in excel spreadsheet name ongoing media general. The forecasted cash flow shows that the cost associated with the Digital media is higher, whereas, the cost associated with the digital media is much greater and even exceeds the revenue. Therefore, the digital media business is not much profitable. Additionally, its revenue is also in the decreasing trend.

The combined value of forecasted cash flow businesses is 429$ million. The value is calculated by the discounted cash flow approach. However, the value of Media Company should reconcile the equity value of Media General’s stock immediately as before the company stock was impacted from all three business includes television broadcast, digital media and newspaper business. The announcement of the acquisition of the newspaper business would affect the stock price. Although the newspaper business is not highly profitable, however, still it was adding in the enterprise value.........................

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