With the sale of The Washington Post, Warren Buffet has unloaded a large stake in a drowning media company. Taking it off his hands is another billionaire, Jeff Bezos. Buffet’s Berkshire Hathaway has been the largest holder of Post Co. shares since the 1970s and will receive $53.5 million of the $250 million buyout price for its stake.
One might assume losing Warren Buffet, who runs one of America’s most profitable companies, as a major shareholder would be a burden on The Washington Post, but that’s simply not the case. With Bezos coming onboard, WaPo is getting a manager who is an expert in low margins. Just like WaPo management, Bezos hasn’t hit profits out of the ball park at Amazon. The New Yorker’s John Cassidy explains that even though Buffet told his staff that Berkshire would be buying more papers, the price Bezos paid for the post was much higher than Buffet would have paid. It should always be considered a risk to beat Warren Buffet in an auction (whether that auction is explicit, or as in this case, implicit).
In some ways, Buffett would have been an ideal purchaser. He’s a long-term investor, he doesn’t have any big political agenda—the causes he does support, such as higher taxes on the wealthy, aren’t self-serving—and he thinks serious newspapers, especially ones with a strong grip on their local market such as the Post, still have a future. Here’s a passage from Berkshire’s 2013 annual report:
[We] believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities—while it may improve profits in the short term—seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.
So why didn’t Buffett buy the Post? One issue may have been the price. In informing Berkshire’s stockholders that he intended to keep buying papers, he stipulated “at appropriate prices—and that means at very low multiples of earnings.” The price Bezos paid—two hundred and fifty million dollars in cash, minus a fifty-million-dollar contribution from the Post toward the future pension costs of its employees—didn’t meet Buffett’s standard, and that’s putting it mildly. In the past twelve months, the Post Company’s newspaper division, which includes some local titles, has posted an operating loss of close to seventy million dollars. Now, most of these losses came in the form of non-cash adjustments, which were related to early-retirement and pension charges. But even if you exclude that stuff, the newspaper division lost about a million dollars over the past year, which means its earnings multiple was negative—hardly a buy signal for a value investor like Buffett.
Bezos likely overpaid considerably for The Washington Post. Perhaps that’s why he used his own money rather than buying it through Amazon where he would have to answer to other shareholders in the case of a failed investment.