Berkshire Buying Media General Papers

Media General Inc. today announced that it has signed agreements with Berkshire Hathaway, Inc. for the purchase of newspapers and new financing.  A subsidiary of Berkshire Hathaway, BH Media Group, will purchase all of the newspapers owned by Media General, with the exception of the Tampa group, for $142 million in cash. Media General said it is in discussions with other prospective buyers for its Tampa print assets.

Under a separate credit agreement, Berkshire Hathaway will provide Media General with a $400 million term loan and a $45 million revolving credit line. The company said the new loan will be used to fully repay the company’s existing bank debt due March 2013 and will mature in May 2020. In conjunction with this, Media General will issue Berkshire Hathaway penny warrants for approximately 4.6 million Class A shares, which represents 19.9 percent of Media General’s existing shares outstanding. In addition, Berkshire Hathaway has the option to nominate a director to Media General’s board of directors.

The newspapers being purchased by BH Media Group include 63 daily and weekly titles in Virginia, North Carolina, South Carolina and Alabama, in addition to digital assets, including websites and mobile and tablet applications. The newspapers also have a substantial commercial printing business.

“These newspapers are great institutions and powerful brands in their respective markets,” said Terry Kroeger, president of BH Media Group.

The Media General newspapers will be part of BH Media Group, along with the Omaha World-Herald Co. newspapers. A sister company of the Omaha World-Herald Co., World Media Enterprises Inc., will manage the Media General newspapers.

“In towns and cities where there is a strong sense of community, there is no more important institution than the local paper,” said Warren Buffett, Chairman of Berkshire Hathaway.  “The many locales served by the newspapers we are acquiring fall firmly in this mold and we are delighted they have found a permanent home with Berkshire Hathaway.”

Marshall N. Morton, president-CEO of Media General, said: “Selling our newspapers represents a monumental change for us. We’re very happy that our newspapers will become part of Berkshire Hathaway’s BH Media Group, a company with a strong commitment to local news leadership and community engagement. This single transaction for virtually all of our newspapers accelerates the timing of our strategy to focus on our broadcast television business and its future growth opportunities, including digital content and mobile DTV,” said Morton.

Media General said that in recent years its model has shifted toward its broadcast and digital businesses. Broadcast television accounted for 77% of total platform cash flow for the full year 2011; in the first quarter of this political year, it accounted for 87%. Morton said Media General is capitalizing well on this year’s event-driven revenue opportunities in broadcast. The company expects to generate $40 million-$45 million in political revenues and will benefit from operating in the key battleground states of Ohio, Florida, Virginia and North Carolina.

Super Bowl revenues on its eight NBC stations were strong and the company expects Summer Olympics revenues will be strong as well. Retransmission fees are expected to reach $32 million-$37 million, compared with $21 million last year, as a result of rate increases in renewed agreements. “Longer term, we have a solid plan for significantly increasing our broadcast cash flow margins and total company EBITDA,” said Morton.

The newspaper transaction is expected to close on June 25. A transition will take place over several months, in coordination with Media General personnel. World Media Enterprises President Douglas Hiemstra will closely oversee the transition and operations of the acquired newspapers for Berkshire Hathaway. After transaction fees and retaining $25 million in cash, Media General will use the proceeds from the newspaper sale to offer to repay existing senior secured notes, with any remaining funds to be used for repayment of the new term loan at par. The sale is subject to customary closing conditions, including Federal Trade Commission approval under the Hart-Scott-Rodino antitrust act.

The $400 million first lien term loan will have an interest rate of 10.5%, which could step down to 9% if total leverage were to reach 3.50x. The new loan will be issued at a discount of 11.5% and is secured pari passu with the company’s existing 11-3/4% senior secured notes due 2017. The closing date of the new credit agreement is expected to be no later than May 24. The existing term loan in the amount of approximately $364 million will be fully repaid the same day the new credit agreement becomes effective.

Media General said it now expects total cash interest expense in 2012 will be approximately $67 million. Total interest expense, including non-cash amortization of issue discount, new issuance fees, and the warrants, is expected to be $80 million in 2012.

Copies of the new credit agreement and the asset purchase agreement will be included in a Form 8-K filed with the SEC later today. The 8-K filings will also be available on Media General’s Website www.mediageneral.com in the Investor Relations section.

Media General’s financial advisor is Peter J. Solomon Co. JPMorgan was the sole arranger and syndication agent on financing.