Last week, Berkshire Hathaway just reported that they made their biggest quarterly earnings after the closing bell. Buffett and Berkshire reported an increase in profits by 41% to $6.4 billion. We thoroughly looked over the Berkshire Hathaway 10-Q over the weekend and took copious notes. Here are the biggest takeaways to pay attention to:
Warren Buffett is currently in talks in order to exit his Graham Holdings Co. $1.1 billion investment. They are the previous publisher of the Washington Post, and Buffett has owned stock in this company for over 40 years.
Graham is considering swapping assets including one of their businesses, as well as a number of their shares of Berkshire Hathaway stock, we learned according to yesterday’s regulatory filings. If a deal is signed, the Omaha, Nebraska-based Berkshire Hathaway would then turn over its Graham stake.
Graham and Berkshire “have not agreed on any terms for such a transaction, and may not reach any such agreement,” we learn from the filing. Buffett’s company may even end up acquiring more shares of Graham if they do not come to an agreement, or it may sell its holdings altogether, said the company in the filing.
At this point, Buffett’s company owns 1.7 3 million shares of the former Washington Post publisher, which is roughly a 28% stake. Yesterday, the stock closed at $654.90 in New York. Graham’s current businesses include a number of cable and TV networks, as well as the Kaplan education unit.
“My first thought was it might involve TV broadcasting” assets, said International Value LLC manager Charles D Vaulx. He currently has shares in Graham Holdings, and also said that it’s much too early to assess the entirety of this deal. Buffett did not respond when seeking comments.
After selling the Washington Post to Amazon.com, Graham changed the company name from Washington Post Co. after the flagship newspaper was no longer a part of the business. Jeff Bezos, Amazon CEO, bought the newspaper last year and took over current employee pension obligations, and Graham is still responsible for the retired workers. According to a regulatory filing, Graham’s defined-benefit pension portfolio held $228.6 million worth of Berkshire Hathaway stock.
The Deal’s Structure
“No transaction will be consummated unless it is in the interest of both parties,” said Graham in a statement. The spokeswoman for Graham Holdings, Rima Calderon, chose not to comment any further. In the filing, Berkshire mentioned that the structure of the deal would be set up as a tax-free spinoff.
The 83-year-old Buffett bought his initial shares in the Washington Post in 1973 for about $11 million. When he announced leaving the publisher’s board of directors in 2011, he said that he would still advise management when needed. Later that year, he also mentioned that he would retain his stake in the company.
“It was a fantastic investment from 1974 until whenever the Washington Post piqued,” Bill Smead said, who is the chief investment officer of Smead Capital Management and overseas Berkshire Hathaway shares. “Now, the whole line of logic is completely different. They don’t own the newspaper.”
Warren Buffett was a long time friend and confidant of Katharine Graham, the former CEO and chairman of the Washington Post who passed on in 2001. This past May, he said that she was one of his role models and mentioned that she’s an example of a “super high-grade” woman who never thought she deserved praise.
The billionaire investor is also friends with Katharine Graham’s son, current CEO of Graham Holdings, Don Graham. We learn this according to Alice Schroeder’s book, “The Snowball: Warren Buffett and the Business of Life.”
The Graham Holdings shares have risen by 63% over the last year. Berkshire’s shares have risen 16% during that time.
This past December, Berkshire Hathaway announced a separate deal to swap equity portfolio shares for assets. During this transaction, Berkshire Hathaway would give up about $1.4 billion of Phillips 66 stock, and receive in exchange the oil refiners business that makes additives to move products through pipelines a lot more efficient by reducing the drag.
During 2012, billionaire investor Warren Buffett put in a bid to buy a United States newspaper in the southeast. This was a mere three years after he mentioned that Berkshire Hathaway, his most influential holding company, no longer had any interest in investing in newspapers “at any price.” “Very smart people looked at Buffett’s offer and wondered what he saw in the declining industry that others did not,” notes Benjamin Esty, professor at Roy and Elizabeth Simmons, along with Aldo Sesia, the senior case researcher of “Buffett’s Bid for Media Generals Newspapers,” which is a case study that is part of Esty’s first-year finance course.
The motivation of Warren Buffett is one of the factors that Marshall Morton, CEO and president of Media General has to determine as part of the case. With only eight days left to pay a $225 million loan that could trigger a serious default on a loan agreement that was amended, Morton needed to take a serious long look at trends in the industry, other strategic considerations, the overall numbers, the interests of shareholders, a number of different financing options that could help him come up with a plan to save his business.
Since Jeff Bezos of Amazon.com fame recently acquired the Washington Post, as well as John Henry – sports mogul – acquiring the Boston Globe, there’s been a tremendous amount of speculation regarding well-positioned investors making big bets on print media and its future. Esty believes this case is more powerful as a teaching tool as opposed to its topical appeal. “When asset values are declining as fast as they have been in the newspaper industry,” explains Esty, “you have to make a bet on the future: Do you have a viable business strategy, and if so, is it one of growth, of maintenance, or of decline? Given your beliefs about the future, you then need to design a financial strategy that supports your business strategy. Media General is a real-life example of topics that we cover in our finance curriculum such as valuation, financing, and risk management, and it brings together financial strategy and business strategy, a confluence that has long been a focus of my own research.”
This particular study outlines all of the various events that led to Morton considering Buffett’s offer to purchase 63 newspapers from the company that is highly leveraged, which also experienced a decline in revenue by 31% over the last four years and a stock price that plunged 90%. The summary also includes the diminished curriculum of it newspapers in the United States as well as advertising revenue over a ten-year stretch, as readers began tapping into more immediate new sources like the Internet instead of relying on print. Couple this with rising costs of paper, labor and printing, the decreasing revenues and increased leverage throughout the industry while creating falling margins.
By the time 2011 came to a close, Media General, who also has interests in digital media and TV broadcasting, had a high level of debt regardless of capital expenditure cuts and a deep workforce. It found itself in a situation that led the company CFO to doubt that Media General would be able to comply with its loan covenants. The company’s decision to sell its newspapers – that provided the ability to deliver the cash needed to comply with a time sensitive refinancing agreement – was announced to the world during February 2012.
“The company’s difficult circumstances brought to mind one of my favorite Buffett quotes,” shares Esty. “He once said: ‘With few exceptions, when a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.’ That sentiment made his Media General bid even more intriguing as a case study topic.”
The offer made by Warren Buffett consisted of an asset agreement that would pay Media General $142 million for its daily and weekly newspapers as well as real estate holdings, plus a $400 million term loan credit agreement. When speculating about Buffett’s change of heart regarding the ownership of newspapers, Esty shows us that Buffett excluded the Tampa Tribune, the largest newspaper owned by Media General. “In retrospect, his targeting just the smaller papers is a big clue about his forecast for the industry. Unlike regionals or big-city newspapers, small-town newspapers don’t have a lot of competition or good substitutes.”
Even Buffett himself quipped during the time of the Media General deal (which did transpire) was announced, “In Grand Island, Nebraska, everyone is interested in how the football team does. They’re interested in who got married. They’re maybe even more interested in who got divorced.”
According to a recent study, more than any other United States billionaire, Warren Buffett gained more wealth and added $37 million a day to his personal bottom line.
Buffett’s net worth through December 11, 2013 – on paper – rose a whopping $12.7 billion to reach $59.1 billion in 2013. He was worth $46.4 billion at the start of the year, according to wealth research firm Wealth-X. He made a paper gain of $1.5 million an hour.
Bill Gates (chairman of Microsoft) is still currently the richest person in America. But in terms of dollar value this year, he was number two. His paper wealth rose by $11.5 billion to reach the amount of $72.6 billion. Sheldon Adelson came in third by making $11.4 billion this year to reach $35.3 billion in total.
The majority of Buffett’s gains were fueled mostly by a rise in stock prices. This boosted the overall value of his company shares held by corporate chiefs and founders. His wealth was spread throughout every sector, and this suggests that his main wealth driver this year was the overall stock market. It had nothing to do with industry-specific sectors like tech or energy.
Overall, the 10 richest billionaires in the world saw their wealth increase by $101.8 billion. This is more than Slovakia and Puerto Rico’s GDPs.
Take a look at the full list.
Biggest Billionaire Gainers during 2013
- Warren Buffett—$12.7 billion gain to $59.1 billion
- Bill Gates—$11.5 billion gain to $72.6 billion
- Sheldon Adelson—$11.4 billion gain to $35.3 billion
- Jeff Bezos—$11.3 billion gain to $34.4 billion
- Mark Zuckerberg—$10.5 billion gain to $24.7 billion
- Masayoshi Son—$10.3 billion gain to $19.1 billion
- Sergey Brin—$9.3 billion gain to $30 billion
- Larry Page—$9.3 billion gain to $29.9 billion
- Lui Chee Woo—$8.3 billion gain to $19.6 billion
- Carl Icahn—$7.2 billion gain to $22.1 billion
Warren Buffett tells us that he chose not to buy the Washington Post because he was not looking to place an added burden on his family or his company.
Berkshire Hathaway Inc., Buffett’s investing conglomerate, was also the largest shareholder of the Washington Post prior to it being sold to Amazon and Jeff Bezos, so it’s no doubt that Buffett thought about making the purchase.
Buffett told Fortune magazine that his consideration was only brief. He didn’t want to buy the Post because he wasn’t ready to saddle his children or the next CEO of Berkshire Hathaway with a major metropolitan newspaper.
Berkshire and company currently own 31 medium and small sized daily newspapers all purchased by Buffett.
Buffett really didn’t say specifically why he chose to pass on the Washington Post. But in the past, he has mentioned on a number of occasions that he believes smaller newspapers are going to do much better in today’s digital information age because of the community aspect.
You’ll recognize many of the same names and faces at the top of the latest forms 400 list of the wealthiest individuals in America. Bill Gates is at the top of the list, and this is his 20th year in a row. His net worth is currently $72 billion. Next on the list is Warren Buffett, followed by Larry Ellison of Oracle, the David and Charles Koch are a tie for fourth place, and the Walton clan – of Walmart fame – occupy spots six through nine.
Michael Bloomberg, New York City Mayor is in 10th place at $31 billion. Amazon CEO and founder Jeff Bezos comes in it 12th place. Larry Page and Sergei Brin of Google fame ranks 13th and 14th. Mark Zuckerberg from Facebook is the 20th person on the list, and his current net worth is $19 billion.
Bill Gates, founder of Microsoft, recently lost ground to Carlos Slim, finance and technology tycoon from Mexico, as the world’s richest person, but he’s actually regained the global top spot as well.
According to Forbes:
“The 400 wealthiest Americans are worth a record $2.02 trillion, roughly equivalent to the GDP of Russia. That is a gain of $300 billion from a year ago, and more than double a decade ago. The average net worth of list members is a staggering $5 billion, $800 million more than a year ago and also a record. The minimum net worth needed to make the 400 list was $1.3 billion. The last time it was that high was in 2007 and 2008, before property and stock market values began sliding. Because the bar is so high, 61 American billionaires didn’t make the cut.”
In a meeting this past January, CEO and chairman of the Washington Post Donald Graham mentions to former Washington Post board member and longtime friend Warren Buffett that Jeff Bezos is the best the US CEO for business acumen and technology.
Jeff Bezos, founder of Amazon.com, is going to buy the Washington Post newspaper for a total of $250 million. This is a surprise deal, and it will end the Graham family’s 80 years of ownership. It’s one of the United State’s most influential newspapers, and Jeff’s Internet business has transformed the retail world forever.
Many people look at Jeff Bezos as a technology visionary. He ensured the readers and employees of the 135 year old newspaper that he plans to preserve its journalistic tradition, but also plans to bring about innovation.
The sale of this newspaper is just another major sign that newspapers are facing unprecedented challenges. This is due to readership decline and a decline in advertising revenue. This follows suit with the sale of the Boston Globe for $70 million by New York Times Co.
In after-hours trading, because of the surprise sale news, shares of the Washington Post rose more than 5% to reach $599.85. This is the highest level the shares have seen in five years.
In an interview, Kathryn Weymouth and Donald Graham both agreed to put the newspaper up for sale. The financial forecasts were the main driving factor in this choice.
“For the first time in either of our lives we said to each other: is ownership by the Washington Post Co. the best thing for the newspaper? We could keep it alive, that wasn’t the issue. The issue was could we make it strong?”
Jeff Bezos and Donald Graham had two meetings in Sun Valley, Idaho where they discussed the deal. This took place during the Allen & Co. tech and media conference this past July. Earlier in the year, the investment bank was retained in order to check out potential buyer interest. It is now the official banker of the deal.
Graham’s company only spoke with no more than a dozen parties about the sale of the Washington Post. He did not name any of the other parties.
“I named the price and Jeff agreed to pay it,” Graham said, who initially expected him to be an unlikely buyer. “To my surprise, when (Allen & Co.) said they would call him, I said that would be great but I didn’t think he would be interested. “
The investment bank ended up being an advisor on the deal.
The CEO of Amazon directly took that message to employees in a letter posted on the website of the newspaper.
“I understand the critical role the Post plays in Washington, DC and our nation, and the Post’s values will not change,” mentions Bezos in the letter.
“There will of course be change at the Post over the coming years. That’s essential and would have happened with or without new ownership,” added the Amazon CEO. “We will need to invent, which means we will need to experiment.”
Additionally, besides the Washington Post, Bezos will obtain other publishing businesses, including The Gazette Newspapers, Fairfax County Times, Southern Maryland Newspapers, Express newspaper, Greater Washington Publishing and El Tiempo Latino.
The Washington Post Co. will retain the newspaper’s headquarters and Slate, an online news site. Amazon.com and the Washington Post will be run separately, we learned from the Washington Post.
The list of billionaires invited to the Sun Valley, Idaho media conference by Allen & Co. includes Mark Zuckerberg, Bill Gates and Warren Buffett. The event is taking place next week and the information in this article comes from a guest list that Bloomberg News obtained.
Eric Schmidt, chairman of Google Inc., Jeff Bezos, CEO of Amazon.com Inc., and Apple’s CEO Tim Cook are all other billionaires who made this year’s guest list. And let’s not forget Rupert Murdoch who is the CEO and chairman of News Corp.
This is a very exclusive gathering that is sponsored by Allen and Co. They have been holding this event since 1983, and it is the type of setting where media executives can connect on an intimate level, discuss the things going on in the industry and also enjoy forms of family entertainment like bike riding and fly fishing. It’s well-known that many of the biggest media buyouts in history were either first spawned, or pushed along at the Sun Valley event. Comcast decided to purchase NBC Universal in 2011 at this very event, so it’s an extraordinarily big deal.
You’ll also find many elected officials at the Sun Valley event. Mayor Cory Booker of Newark, New Jersey met Mark Zuckerberg at this event last year and their relationship turned into a $100 million donation from Zuckerberg which was used for Newark schools. Zuckerberg is the chairman and CEO of Facebook Inc. You will find both men on the guest list this year, and another famous political figure, New York City Mayor Michael Bloomberg, will also be in attendance. He is the founder of Bloomberg News.
Warren Buffett also attended this event in 2011, and since then he has been acquiring many newspapers because he believes that these publications for local communities won’t have any trouble thriving since there really isn’t any competition in their local market.
Rupert Murdoch and his sons James and Lachlan have all been invited and are expected to attend. Murdoch announced recently that he is planning on spinning off the publishing division of his company. Others close to Murdoch that were invited are Joel Klein, who heads up his company’s education division, and Chase Carey, COO.