Buffett’s Bid for (MEGs) Newspapers Harvard Case Solution & Analysis

Buffett’s Bid for (MEGs) Newspapers Case Study Solution

When the organization's finances are taken into account, the projection may now be more optimistic. It demonstrates that newspaper circulation and trends decreased between 2005 and 2010, which may indicate a slowing of growth. However, due to the intense competition in radio and television broadcasting, analysts believe that this trend will never change (Edge, 2020). The case demonstrates that MEGs also experienced a decline from 2001 to 2011 and that the newspaper and publishing industries have reduced their prices over the past ten years, despite maintaining a high average. Because of these things and circumstances, the forecast is optimistic because growth is expected to be slow.

Analysis of Buffet’s “Credit Agreement” (Q: 3)

There were two parts to the Buffets' credit agreement evaluation: debt and penny warrants. However, Buffet offers two options for the purchase of MEG's (63) newspapers: the first is to perform the acquisition by providing MEG with 142 million dollars in cash, and the second is to proceed with the new credit facility. Presently there is a requirement for the assessment of the credit understanding for the Smorgasbord to distinguish the most ideal choice and most valuable choice for obtaining.

To calculate the value of P by evaluating the credit agreement using the Black-Scholes model. In this case, the evaluation includes the price of the stock, the price of the option, and the number of years until exercise (Gulen, 2019). Rate without risk and St. Dev assumes that the call's value will be calculated. The Black-Scholes formula for calculating the call's value, which includes the present value, cumulative d1, and d2, is all that is required. The results show that the call's value for the credit agreement is (1.25), which gives Buffets a chance to use the call option.

The total cost is simply calculated by multiplying the price of stocks by the number of warrants issued for the credit agreement, which totals (4,650,000) warrants. The total cost is approximately (46,500), and the share's current market price is (3.14), which is multiplied by the number of warrants to determine the share's market value, which is (14,601,000). After deducting the total cost from the share market value, the holder's warrant has a total value of (14,554,500) dollars. (NPV) for the credit agreement considers a premium installment of (10.50%) with a rebate pace (of 2.57%) and the quantity of periods is (32), which presents four installments in a year. NPV is about ($227.33 million) for the credit understanding that eventually presents that the acquisition of MEG's paper through cash makes a high potential for Buffet.

Refinance the Term Loan as (New vs Current) Lender (Q: 4)

To refinance MEG's term loan for (225 million) dollars, two scenarios now arise one involving the current lender and one involving the new lender. The analysis shows that there will be about (32) payments, which is equivalent to four payments per year, and that the term loan and credit agreement will take into account payments that are made at an interest rate of (10.5) percent and a discount rate of (2.57%). Simply multiplying the interest payments by the discount factor for each period yields the present value for each period. By subtracting the value from the total term loan to get the NPV from the sum of all present values. (NPV) for the term credit is about ($77.89 million) these outcomes present that as an ongoing lender to MEG term credit can be renegotiated, which consider being expected approaching periods because the assessment presents a positive NPV yet as another moneylender to MEG there is the gamble of getting negative NPV that is the reason it isn't reasonable to renegotiate the term advance of MEG as another loan specialist.

Yield to Maturity (YTM) in Eight Years (Q: 5)

To evaluate the YTM, Berkshire Hathaway proposed a term loan of approximately $400 million, with a 2012 closing date. The number of periods is regarded as the semiannual payments for this calculation. The analysis of the results reveals that the YTM for the term loan that Buffet proposed within eight years of the loan closing date is approximately (5.13) percent. The total number of (16) payments held in these transactions results in an (NPV) of approximately ($122.75 million), which is lower than the cash offer price.

Options Viable for (MEG’s CEO) (Q: 6)

Before purchasing Buffet's MEG newspaper, several factors need to be considered. The CEO of MEG's Newspaper has several options for analyzing the situation, including selling the newspaper division, selling digital media, restructuring debt, issuing new equity, and finally declaring bankruptcy.

The MEG's current newspaper sector does not offer much potential, selling the newspaper division of the company ultimately helps them obtain the funding they need to repay their debt and establish sustainability within the organization. When buffets show interest in purchasing (63) MEG newspapers, the MEG has a huge opportunity. The MEG should not pursue the second option, which is to sell the digital media division. This is because the digital media division is expanding rapidly right now, allowing the company to increase its market share.

A third choice accessible for the MEG is to rebuild its obligation because its obligation proportion presents a worth of (95%), which shows a lower credit score for the MEG and it is viewed as truly challenging for the association to rebuild its obligation in this present circumstance. The fourth option is to issue new equity by setting up a good capital structure. This would help the company get new equity, but it would ultimately lower the share price, which is unacceptable to the MEG. Now that the organization doesn't have any other options to make operations more sustainable, the last option goes bankrupt.

After weighing all four options, it was determined that selling the newspaper division would help the company pay off its debt, which would increase its potential. The MEG accepts the buffet's purchase price for the newspaper division, which contributes to the overall deal's viability. This additional funding from Berkshire Hathaway will be used to purchase the company's goodwill, which it views as an intangible asset.


The overall studyrotates around the acquisition of (the MEG) newspaper by (Warren Buffet), this processexamines both edges to identify the worth of the acquisition for (MEG and Berkshire Hathaway). Evaluation of the accessible price, credit agreement, and the term loan present that the acquisition of the newspaper partition is worth able for the Buffet and this is also measuredas the best option for the MEG to sell the newspaper division that helps it to raise funding that ultimately helps to reduce and repay overall debt and improve the stability of the organization....................

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