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

Buffett’s Bid for Media General’s Newspapers Case Solution

Introduction

This case study is regarding the proposed bid by Berkshire Hathaway’s Chairman, Warren Buffett, (Berkshire Hathaway is famous for generating high returns on its diversified portfolio of investments) to buy Media General’s newspaper division.

MEG, a famous print and electronic media company, is currently struggling to survive in its newspaper division due to technological advancement where the public is more interested in electronic media rather than print media.

For solving the problems and avoid bankruptcy, MEG’s CEO, Marshal Morton,has certain options i.e. either to regenerate finance or to sell the newspaper division.

Warren Buffett, due to his past interest and relationship with newspaper industry along with his renowned successful business history, made an offer to MEG’s CEO, Marshal Morton, to buy MEG’s newspaper division.

Problem statement

MEG is currently facing the problem to repay bank loan of $363 Million, which is due in the year 2013 as well as the another problem regarding low profit margin due to high interest payments and low level of revenues.

As the newspaper market in the U.S is already deteriorating and many of the largest newspaper companies declared bankruptcy, therefore MEG has the same chances for its 64 newspaper divisions.

Buffet’s Bid for Media General’s Newspapers Case Solution

Buffett’s Reasons to Buy MEG’s Newspaper Division:

There are many factors which lead to the Buffett’s decision for MEG’s newspaper division bid,

  • The basic fact that Buffett has history with the newspaper industry, he started his career with newspaper industry as a paper boy in 1940s and later in 1973 he bought Washington Post and after four years he also bought Buffalo News. Although facing many losses in Buffalo News one of Buffett’s part is still with newspaper industry.
  • Secondly, the recent market downfalls which affected many of the newspaper companies declared bankruptcy in the year 2010(including eight major and hundreds of smaller companies), therefore Buffet took the situation as a market capturing opportunity to fill the gap as well as MEG’s platform has the capacity to fill and take advantage of that gap.
  • Following the idea of market capturing, with increased optimism, Buffet also has the new business model to capture the market through free or very cheap interest rather than through expensive printing mode.
  • As MEG’s bank loan maturity was near, and there was no backup plan/reserve for payment, in Nov 2011 following the bankruptcy event in 2010, Buffett proposed the offer for MEG’s newspaper division. Looking at the timing of both events i.e. bankruptcy and bank loan maturity, this was the perfect timing to propose his terms to MED’s CEO, Marshall Morton, which had a high probability to be accepted.
  • By looking at Buffet’s proposal, it seems like Buffett proposed a win, win situation. The initial part of the deal was cash payment of $142 million against acquisition of 63 daily and weekly MEG’s newspapers and their real estate holdings i.e. not against equity of MEG’s newspaper which could further deteriorate. The second part was more interesting, i.e. providing credit of $400 million (@ 11% discount to face value, which would result in paying $354 million) with the interest rate of 10.5% to repay fully current bank loan of $363 million (having much low interest rate of 5%) plus receiving penny warrants for MEG’s shares, which would entitle him for 4.65 million Class A common stock which would show 19.9% of MEG’s common share outstanding...........................                                                                                                                                                                                                                 This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

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