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Expert alert: Buffett to buy Omaha World-Herald

Berkshire Hathaway Inc. announced today it will acquire the Omaha World-Herald Co., a transaction that should close in late December, pending approval of the World-Herald’s shareholders.

What will Wall Street make of this latest purchase by CEO Warren Buffett? Donna Dudney, associate professor of finance at UNL’s College of Business Administration, studies and teaches a course in Buffett’s investing strategies and behavior. Here are Dudney’s thoughts on the latest acquisition by “The Oracle of Omaha”:

The purchase seems like a natural fit for Berkshire Hathaway. Buffett has frequently said that he is interested in purchasing companies that are understandable and within his circle of competence. Buffett has extensive knowledge of the newspaper business, and has on occasion said that if he hadn’t gone into money management he probably would have gone into journalism.

He has owned many newspapers, starting with the purchase of the Omaha Sun newspaper in 1969. Berkshire has been a major investor in and member of the board of directors of the Washington Post since the 1970’s, serving as a confidante and advisor to Katherine Graham and Don Graham. Buffett certainly understands this business and knows how to analyze the value of the World-Herald.

Buffett also looks for companies with a durable competitive advantage. The World-Herald is in the top 10 newspapers in the country in terms of the percentage of subscribing households in its market, and its digital news site dominates the Omaha market. While nationally the newspaper industry faces substantial challenges, the World-Herald has a sustainable niche as the dominant provider of local and regional news in Nebraska.

The thing that I find most surprising about this acquisition is its small size. The performance of the Omaha World-Herald, even if is exceptional, will not move the needle on the performance of Berkshire Hathaway. However, it is an investment that is right in Buffett’s backyard, with management that Buffett knows and likes. My guess is that Buffett liked the fundamentals of the company and was able to purchase the company at a very attractive price.”

Reach Donna Dudney, UNL associate professor of finance, at (402) 472-5695 or ddudney1@unl.edu.

What about the acquisition’s effect on the World-Herald’s newsroom and its performance as a news enterprise? Gary Kebbel, dean of the UNL College of Journalism and Mass Communications, says there are many positives to Buffett becoming the new owner of the state’s largest news operation:

“Most people will think that, obviously, Warren Buffett buying your stock and buying your company is a vote of confidence in your management. It also means that it’s a vote of confidence in the future of your business.

This allows the Omaha World-Herald to be much stronger, because it won’t have to worry as much about its capital needs for expansion, improvement and innovation. This development gives the World-Herald a huge opportunity to extend its brand to all distribution platforms — even ones that haven’t been invented yet — because they’ll have the resources to do so.

“The really important thing, though, is this means the World-Herald is staying in local hands. What we know about the newspaper industry in general is that community news is in very high demand. Those locally owned newspapers that are delivering information about their communities and their communities’ needs have been stronger in comparison to large metropolitan papers. By their nature, metros have not been able to create as strong of community ties, particularly in tight geographic areas.

If you’re wondering how this might change the World-Herald, my advice would be to look at his other similar holdings, the Washington Post and the Buffalo News. Has he interfered in those newsrooms? The answer is an unequivocal no.”

Reach Gary Kebbel, dean of the UNL College of Journalism and Mass Communications, at gkebbel@unl.edu. Telephone interview requests can be arranged through Steve Smith, Office of University Communications, (402) 472-4226 or ssmith13@unl.edu.

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