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Saturday, December 31, 2011

WALL STREET JOURNAL: Q: What Does It Take to Get to the Oracle?

Among investors, there are few prizes more coveted than the opportunity to ask Warren Buffett a question at Berkshire Hathaway's annual shareholders meeting. But this year, Fidelity Investments mysteriously claimed more than its fair share.

Turns out, it was no accident—and the Oracle of Omaha is none too pleased about being outfoxed on his own turf. Now he is turning the tables.

Warren Buffett is in demand at the Berkshire Hathaway annual shareholders meeting, shown here in April.

"There's no question they figured out how to game the system," Mr. Buffett says. He said he didn't like Fidelity's ploy because "it's not in the spirit of the meeting."

Mr. Buffett says he is still formulating his countermove and is likely to detail a new questioning system before the next meeting on May 5.

For years, thousands of people have flocked to Omaha, Neb., to attend the annual meeting of Berkshire Hathaway Inc. It is one of the few occasions where investors can hear directly from Mr. Buffett, Berkshire's chairman and chief executive, who shuns conference calls and private meetings with individual shareholders or analysts. Attendance has been above 30,000 in recent years at the so-called Woodstock for Capitalists, with many aspiring to ask one of the 50 or more audience questions allowed each year.

Three years ago, Mr. Buffett tried to put an end to footraces to the microphones that at times became scrums. He set rules to pick questioners at random, through drawings held next to 13 microphones in different parts of the auditorium. Shareholders could alternatively send questions to a panel of journalists that would alternate with the crowd in asking them.

Fidelity, one of Berkshire's largest outside shareholders, typically sends a large contingent to the event. The trip is viewed within the firm as a learning experience for younger analysts and even experienced managers who want to glean investing insights, according to people familiar with the matter.

Over the years, some Fidelity employees grew frustrated by the quality of questioning, which often drifted to Mr. Buffett's personal habits, recommended reading, and his advice for students. Others were exasperated by fruitless sprints to auditorium microphones in the old system. "It was a strain on the legs, and a lot of wasted effort," recalls a Fidelity portfolio manager who previously took part in the event.

After the raffle system was introduced, a group of Fidelity analysts and money managers began plotting ways to get more face-time with Mr. Buffett. In 2010, they tried to increase their chances of being picked by having multiple people take part in a small number of raffles.

That effort was only moderately successful, so they began plotting what was known internally as the "enhanced version" of the strategy, according to people familiar with the matter.

This year, more than 40 Fidelity representatives went to the meeting, fanning out and entering raffles held all over the auditorium. Roughly 500 to 800 people entered the drawings, according to the company.

It wasn't rocket science, but Fidelity's plan worked: Representatives from the Boston-based firm got to ask six out of 27 questions allocated to the crowd, or more than one out of five questions. Following the custom of past meetings, those that took the microphone identified themselves by their name and hometown, without mentioning their employer. Two more questions were asked on the firm's behalf by the journalists, getting Fidelity a total of eight out of 54 questions.

Mr. Buffett didn't learn that Fidelity was so prominently featured until later, and termed it "an unusually high hit rate."

A Fidelity spokeswoman declined to comment on Berkshire and Mr. Buffett, but said the objective of Fidelity's investment staff when meeting any company is to "ask the right questions so they can obtain the best information to analyze and evaluate that company." Fidelity holds about $4 billion of Berkshire shares, or a roughly 2% stake in the company.

At the April meeting, Fidelity representatives asked Mr. Buffett and his business partner Charlie Munger about the outlook for banks Berkshire had stakes in and how they estimate a company's growth. Joel Tillinghast, a longtime Fidelity stock fund manager who is writing a book about investing, asked how they think about companies' returns on capital.

Other regular pilgrims to Omaha say the meeting's dirty little secret is that, with a little planning, it is not that hard to get microphone time. Whitney Tilson and Glenn Tongue, managing partners of New York investment firm T2 Partners LLC, both asked questions this year after taking part in a drawing held in an "overflow room," a ballroom with a video link that accommodates hundreds of attendees who arrive late or can't find seats in the main auditorium.

Mr. Tilson, who has also asked questions in previous years, says he noticed some time back that few people in the overflow room signed up for the opportunity. He says he has long watched the meeting from that location simply "because it's less chaotic and more comfortable." ("He figured out the weak link," observes Mr. Buffett.)

For next year's meeting, Mr. Buffett has so far decided the crowd will get roughly a third fewer questions because a panel of Wall Street analysts will be added to the lineup. He also says Berkshire will "take steps to make sure that the questions from the audience are really by chance."

Whatever system Mr. Buffett comes up with, some Fidelity insiders say they will look for a way around it—within the rules, of course. Mr. Buffett says he doesn't fault them for trying. "I might have done the same thing when I was that age," he says.


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WALL STREET JOURNAL: What Fidelity Asked Warren Buffett

A story in today’s Wall Street Journal details the complex ploy staffers from Fidelity cooked up to win some face time with Warren Buffett during this spring’s Berkshire Hathaway annual meeting, one of the very few times a year investors can ask Buffett questions directly. Fidelity’s tactics allowed the firm’s representatives ask about 20% of the questions allocated to the annual meeting crowd.

A few Buffett followers previously had an inkling of Fidelity’s ploy to get in front of Buffett, but perhaps not the full extent of the scheme, which irked (and sort of impressed) Buffett.

Berkshire shareholder and Buffett book author Jeff Matthews noted on his blog earlier this year that a unusually high number of questions were from “bright young financial analysts from the Greater Boston Area, which suggests somebody figured out how to game the ‘lottery’ system,” used to select questioners from the Berkshire annual meeting. (An anonymous commenter on the site also noted what Fidelity did.)

Matthews, as it turns out, sat next to a young Fidelity analyst who had a list of prepared questions and picked one that Buffett complimented during the meeting, according to his notes.

She asked: If Buffett and Munger were to live another 50 years, what sector or asset class would they add to their circle of competency and why? Their answers: technology or energy. (Months after the meeting, Buffett disclosed a massive investment in IBM.)

Other Fidelity queries included Buffett’s view on the outlook for Wells Fargo and U.S. Bancorp, stocks that Berkshire owns, and a poser about Ajit Jain, who runs Berkshire’s reinsurance business and is a rumored successor to Buffett. The latter question, which according to shareholder Ben Claremon’s notes was read out by a journalist, was about how Jain thinks. Buffett launched into a description of how Jain puts Berkshire first and is a “remarkable human being.”

Not every question was about Berkshire or investing. Sumit Mehra, a Boston-based Fidelity analyst who grew up in the Kashmir region of India, asked how Buffett and Munger would incentivize a child born in a country like the U.S. to compete against motivated kids from emerging markets. Buffett and Munger’s response: help him or her find an interest to pursue.

So why did Fidelity go to such lengths to speak to Buffett when he seldom says anything new at the annual meeting, and there may not be an investing advantage to gain? Like other shareholders, some Fidelity staffers wanted to get the most out of the experience and thought they had better questions than others, according to people familiar with the matter.

Regular attendees of the annual Buffettpalooza and value investors say nothing beats getting in front of Buffett.

“It’s priceless” to see and hear Buffett in person, says Shai Dardashti, managing partner at Dardashti Capital Management in New York who has made annual pilgrimages to Omaha for a decade. “It’s like asking Albert Einstein a math question—you know the answer but he’s telling it directly to you.”


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Thursday, December 8, 2011

UMASS LOWELL: ‘Oracle of Omaha’ Offers Advice on Investing, Life

12/07/2011
By Jill Gambon

It was Angela Pasquerello’s most memorable college experience to date. Not only did the senior accounting major fly to Omaha, Neb., meet billionaire investor Warren Buffett and hear his advice for success, but she also cemented friendships with a group of her classmates.

Pasquarello was one of 20 Manning School of Business students invited to visit with the “Oracle of Omaha.” Each year, Buffett, the CEO of Berkshire Hathaway, invites select groups of students from across the country, most of them MBA candidates, to meet for a question- and-answer session and then lunch. Management Prof. Ravi Jain had written to Buffett twice, asking that his finance students be included. This year, the invitation came.

“I couldn’t imagine having a better experience through school,” says Pasquerello, who is enrolled in Jain’s Portfolio and Security Analysis class. “I learned so much and made so many friends. It was a great group.”

The students from UMass Lowell and seven other universities met with Buffett at the Field Club, the oldest country club west of the Mississippi River. At Jain’s urging, the group arrived at the auditorium an hour early and got front-row seats. Jain’s students prepared several questions in advance and three of them got to pose theirs to Buffett. Pasquerello asked him how he maintains a positive outlook. His response surprised her: His optimism is unyielding.

“The visit with Warren Buffett was a unique opportunity for our students to learn firsthand from one of the world’s most successful investors,” says Dean Kathryn Carter, who accompanied the students on the trip. “The students were outstanding representatives of the University and I’m sure the experience is one that all of us will always remember.”

Invest in Yourself

Buffett told the students that their best investment is in themselves and said the best way to prepare for the business world is to sharpen their written and oral communication skills. “He’s as sharp as a tack. He told stories that students could understand,” says Kevin Kohr, a senior finance major who helped plan the trip.

Buffett even gave Kohr a ride to the restaurant, Piccolo Pete’s, where the group went to lunch. Buffett, who drives himself everywhere, offered to chauffeur four students in his Cadillac and Kohr was chosen to go with him. “It was like talking to someone’s grandfather,” Kohr says. “He’s so down-to-earth. He made it about us. He asked us what we are doing now and where we see ourselves in 10 years.” After lunch at the downtown Omaha restaurant, Buffett posed for pictures and chatted with the students.
“It was a once-in-a-lifetime experience,” says Jain. “Buffett is a pure financial genius. He has a different way of looking at finance, a common sense approach.”

Classroom Meets Real Life

Jain’s students are well-acquainted with Buffett’s approach to investing. The required text for the Portfolio and Security Analysis class is “The Intelligent Investor” by Benjamin Graham, the book Buffett read as a college student that shaped his investment strategy.

Jain’s students oversee the University’s Student Managed Fund, one of four investment funds set up by the UMass Foundation on the Amherst, Boston, Dartmouth and Lowell campuses. The UMass Lowell fund has won the intercampus competition three out of four years using Buffett’s value investing philosophy.
Manning School alumni supported the trip, donating about $7,000 to help pay the travel costs. “They were thrilled to help our students,” says Steven Rogers, senior major gifts officer. Rogers says plans are in the works to organize a trip to New York City next year so students can meet with finance professionals on Wall Street.

While in Omaha, the students toured Berkshire Hathaway subsidiary Borsheims, one of country’s largest jewelers, and met with its CEO. Pasquerello and Kohr agree that the shared experience of the trip has forged strong bonds with their classmates. “Not only did we get to meet Warren Buffett and hear his ideas, but now we are all good friends,” Kohr said.

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BUSINESSWEEK: Alliant Seen Luring Warren Buffett in Utility Takeover: Real M&A

By Tara Lachapelle and Mark Chediak

December 07, 2011, 7:23 PM EST

Dec. 7 (Bloomberg) -- With Alliant Energy Corp.’s shares approaching an all-time high, the electric utility could help shareholders reap a record profit by selling itself to Warren Buffett or Wisconsin Energy Corp.

The operator of power plants in Wisconsin and Iowa revised some provisions for executive pay and employee retirement plans in an event of a takeover, according to the company’s filing with the Securities and Exchange Commission this week. Madison, Wisconsin-based Alliant rose to a four-year high yesterday after disclosing the change, which may signal the utility is preparing for a sale, said Elizabeth Nowicki, a mergers and acquisitions professor at Tulane University Law School.

Alliant, which meets Buffett’s criteria for a takeover according to data compiled by Bloomberg, may attract Berkshire Hathaway Inc.’s MidAmerican Energy Holdings Co., Wisconsin Energy or Xcel Energy Inc. with its assets in the U.S. Midwest, Caris & Co. and Westwood Holdings Group Inc. said. Alliant, which has risen twice as much as the average regulated utility in North America under 62-year-old Chief Executive Officer Bill Harvey, would be worth at least $46 a share, Manulife Asset Management said, exceeding its high of $45.74.

“There has been talk of Alliant as a possible target,” Andrew Levi, a New York-based utility and power analyst for Caris, said in a telephone interview. “Berkshire Hathaway, with their ownership of MidAmerican, they’re always kind of looking for a deal. Wisconsin Energy also fits the bill.”

Alliant rose 1.3 percent to $42.85 at 12:10 p.m. in New York today, the highest since June 2007. The advance was the biggest of any utility in America, based on Standard & Poor’s equity indexes.

Housekeeping

Scott Reigstad, a spokesman for Alliant, said the changes disclosed in the SEC filing “can best be characterized as housekeeping items that make technical tweaks” and aren’t associated with “any potential future event.”

He declined to comment on whether Alliant has been approached about an acquisition or is considering a sale.

Buffett, CEO of Omaha, Nebraska-based Berkshire, didn’t respond to a request for comment e-mailed to his assistant, Carrie Kizer. Barry McNulty of Wisconsin Energy, and Xcel’s Steve Roalstad declined to comment on rumors or speculation.

Alliant ended at $42.32 a share yesterday, its highest price since December 2007. The regulated utility serves more than a million customers in Wisconsin, Minnesota and Iowa with its 9,700 miles of electric transmission lines and 8,000 miles of natural-gas pipelines, its website said.

In a regulated market, utilities can pass along costs to customers by raising rates, while states monitor prices so that providers aren’t earning excessive returns.

‘Change-In-Control’

Alliant revised its so-called change-in-control provisions in an SEC filing on Dec. 5 to restrict the ability of any “successor to the company” to amend employee retirement plans for three years after a takeover of the utility. The company also changed the timing of severance payments for executives to 10 days after the date of a takeover, the filing said.

The revisions are effective Jan. 1.

Tulane University’s Nowicki, who is a former SEC attorney, says the revisions made by Alliant aren’t typical.

“The changes made are specific enough and unique enough that it’s not part of some typical corporate governance review,” she said in a telephone interview. “There’s something going on. Alliant is envisioning something, whether they’ve already been approached by a possible acquirer or whether they have an insider who’s interested in increasing their control.”

In a takeover, Alliant could get $46 a share to $54 a share, said Greg Phelps, who manages $4.5 billion at Manulife Asset in Boston, including Alliant shares.

Utility Deals

While Alliant faces slowing profit growth this year, the stock has advanced 50 percent since Harvey began as CEO in July 2005, according to data compiled by Bloomberg. That’s more than the 21 percent gain for comparable companies.

Alliant, valued at $4.7 billion, would make sense for Berkshire’s MidAmerican utility unit, according to Caris’ Levi. Berkshire bought Des Moines, Iowa-based MidAmerican in 2000 in what was the 81-year-old billionaire’s first foray into energy.

Buffett, who said five years ago that owning regulated utilities was “a way to stay rich,” has turned to acquisitions this year to help reduce Berkshire’s cash hoard. Berkshire, which had about $35 billion in cash on its balance sheet at the end of the third quarter, could spend as much as $10 billion on its next acquisition, Buffett said in a Nov. 21 interview.

Morningstar Inc. ranked Alliant among the most-likely U.S. companies to be acquired, according to a September report. MidAmerican was cited as a buyer for Alliant.

Buffett Criteria

It was also one of the companies Bloomberg identified in March that met the acquisition criteria Buffett listed in his annual letter to shareholders.

Buffett typically prefers “simple” businesses with pretax profit exceeding $75 million, “consistent” earning power, and “good” returns on equity while employing little or no debt, according to his report. He has shifted his takeover strategy as Berkshire has grown to focus on “capital intensive businesses,” such as power producers and railroads, which require consistent investment in infrastructure and equipment.

So-called value investors such as Buffett also purchase companies when their stock prices are low by historical standards compared with earnings.

Alliant is now one of 32 U.S. companies with values from $2 billion to $10 billion with capital expenses accounting for at least 10 percent of their net fixed assets; a return on equity exceeding 10 percent; profit growth in the past five years that ranked in the top 50 percent; and an average price-earnings ratio in that span that was less than the median company in the Standard & Poor’s 500 Index, data compiled by Bloomberg show.

Wisconsin Energy

“Warren Buffett has always liked the regulated utility model,” Travis Miller, a utility analyst at Morningstar in Chicago, said in a telephone interview. “This is one of the more attractive utilities right now. He’s got a lot of cash available and we wouldn’t be surprised to see him make a move.”

Wisconsin Energy and Xcel Energy could also buy Alliant, according to William Costello, a Dallas-based utility analyst and money manager at Westwood, which oversees $14 billion.

Milwaukee-based Wisconsin Energy, which has a market value of $7.7 billion, and Alliant would be a “great combination” because Wisconsin Energy would be able to add customers in Iowa and Minnesota, he said. Alliant would also provide Minneapolis- based Xcel, which has a capitalization of $12.7 billion, with assets in Iowa and a bigger presence in Wisconsin, considered an attractive state for regulated utilities, he said.

“Alliant fits pretty well with either of them and would give them both a little bit more diversification and more longer-term growth prospects,” said Costello, whose firm owns shares of Wisconsin Energy and Xcel. “Both of those companies would love to be buyers. I’d be happy to see either one of them merge with Alliant.”

--With assistance from Zachary R. Mider and Dan Kraut in New York and Julie Johnsson in Chicago. Editors: Michael Tsang, Daniel Hauck.

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BLOOMBERG: Buffett Gets High Rates, U.S. Incentive in $2 Billion Solar Bet

Warren Buffett’s Berkshire Hathaway Inc., which agreed to buy a $2 billion solar farm in California may have picked the right time to invest in the industry.

The 550-megawatt Topaz project will qualify for a federal incentive because it began construction last month, and will sell power under a long-term contract that was completed before prices for solar panels fell 44 percent in the last year. Berkshire’s MidAmerican Energy Holdings utility unit and First Solar Inc. (FSLR), the project developer, announced the deal today.

Topaz, which will use First Solar panels, may be the last large solar farm to qualify for the U.S. Treasury Department incentive program, which is set to end this year. It will likely sell power at a higher price than projects that are seeking utility contracts now, said Paul Clegg, an analyst at Mizuho Securities USA in New York.

“The smart guys are getting into these early projects because they have very attractive power-purchase agreements,” Clegg said in an interview today. “Financing won’t be as easy at the rates being signed for the latest ones.”

First Solar projects that are currently being built will sell power for 14 cents to 16 cents a kilowatt-hour, said Alan Bernheimer, a spokesman for the Tempe, Arizona-based company. By 2014, he expects its solar farms to sell power at 10 cents to 12 cents a kilowatt-hour, he said.

The price of the Topaz deal wasn’t disclosed and Bernheimer wouldn’t give the rates at which it will sell electricity. PG&E Corp. (PCG)’s San Francisco-based utility agreed in August 2008 to buy Topaz’s power for 25 years.

‘Favorable Terms’

“The reason this project made sense is because the power purchase agreement was signed three years ago at very favorable terms,” Sanjay Shrestha, an analyst at Lazard Capital Markets in New York, said in an interview. He has a ‘buy’ rating on First Solar.

Prices for power sold under these long-term contracts are coming down, and the expected expiration of a federal incentive may further erode profit margins for large projects, Shrestha said. The Treasury Department 1603 program, which offers cash grants equal to about 30 percent of renewable energy projects’ development costs, is set to end Dec. 31.

First Solar received $3.1 billion in federal loan guarantees for three other solar projects that it later sold. Buffett is chairman and chief executive of Omaha, Nebraska-based Berkshire Hathaway.

Loan Guarantees

The Topaz plant was offered a conditional guarantee that the company couldn’t complete because it was unable to meet some of the requirements before the U.S. Energy Department loan guarantee program ended Sept. 30. MidAmerican Energy said the purchase shows that solar energy is viable without government backing. Solyndra LLC, a failed solar panel company, received a guarantee under the same program.

“Buffett’s investment shows that solar has come of age,” Shrestha said. The end of the grant program “takes away some of the incentive but there will still be viable large scale solar plants.”

The billionaire’s endorsement may also help First Solar sell other solar farms, even if they have power-purchase deals with lower rates, Clegg said. “I don’t doubt they will find buyers for more of their projects,” he said. “The returns probably won’t be as good as the ones that have already been sold.”

First Solar has sold and begun building projects using its panels to buyers including General Electric Co., NextEra Energy Inc., Exelon Corp. and NRG Energy Inc. Solar farms that First Solar is developing and still need buyers total 600 megawatts, according to a company presentation on Oct. 26.

Biggest Acquisition

MidAmerican may not be one of the buyers, said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett.”

“I would guess this is specific to MidAmerican and this particular deal,” he said in an e-mail. Though Buffett has voiced support for renewable energy, “I wouldn’t think he’s going to run around and buy solar assets.”

Buying Topaz will provide a “nice set” of cash flow for MidAmerican, Jenny Chase head of solar analysis at Bloomberg New Energy Finance, said in an e-mail. “This is the biggest acquisition of a single photovoltaic project anywhere,” she said.

The Topaz project in San Luis Obispo County is expected to be complete in 2015. It’s the third-largest solar farm announced to date in the U.S., tied with First Solar’s Desert Sunlight plant also in California and trailing plants that NRG Energy and Cannon Power Corp. are developing, according to New Energy Finance.

First Solar rose 4.6 percent at 3:40 p.m. in New York. Berkshire Hathaway gained 0.5 percent to $118,000.

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Thursday, December 1, 2011

BERKSHIRE HATHAWAY: Berkshire Hathaway to Acquire OmahaWorld-Herald Company

Berkshire Hathaway to Acquire OmahaWorld-Herald Company

FOR IMMEDIATE RELEASE November 30, 2011
Omaha, NE –

Berkshire Hathaway Inc. Chairman and CEO Warren Buffett and Terry Kroeger, CEO of
the Omaha World-Herald Company, owner of The World-Herald, six other daily newspapers
and several weekly newspapers across Nebraska and Southwest Iowa announced that Berkshire
will acquire the Omaha World-Herald Company. The transaction is expected to close in late
December, pending approval of the Omaha World-Herald’s shareholders, comprised of active
employees, retired employees and the Peter Kiewit Foundation and is also subject to customary
other closing conditions, including regulatory approvals.

“The World-Herald delivers solid profits and is one of the best-run newspapers in
America, and we are pleased to have Terry Kroeger and his team join Berkshire Hathaway,” said
Warren Buffett, Berkshire’s chief executive officer. “We are also delighted to report that the
editorial independence that Nebraskans and Iowans have come to expect from the World-
Herald will continue.”

In addition to the Omaha World-Herald, the purchase includes daily newspapers in
Council Bluffs, Ia., Grand Island, York, Kearney, North Platte and Scottsbluff in Nebraska, in
addition to many weeklies and shoppers in the two states. The Company also owns World
Marketing, Inc., a direct marketing firm with operations in Omaha, Chicago, Atlanta, Dallas and
Los Angeles.

Buffett added that the purchase is consistent with Peter Kiewit’s vision for local
ownership of the Omaha World-Herald, which led to Mr. Kiewit’s purchase of the newspaper in
1962 from the Hitchcock Family.

“Warren Buffett’s offer to purchase our Company presented a unique opportunity to
address our long-term capital needs and continue local ownership of the Omaha World-Herald,
which is consistent with the legacy left to us by Mr. Kiewit,” said Terry Kroeger, the World-
Herald’s CEO.

Kroeger explained that the Company’s employee-ownership structure was restrictive
and limited the ability to raise capital from non-employees, in addition to the ongoing need to
repurchase stock from exiting employees. “We have repurchased the Company about seven
times since the employee ownership plan was put in place,” Kroeger said.

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BLOOMBERG: Berkshire Hathaway to Buy Omaha World-Herald

Warren Buffett’s Berkshire Hathaway Inc. will expand its media holdings by acquiring the Omaha World-Herald Co., publisher of the billionaire’s hometown newspaper.

Terms weren’t disclosed for the deal, which would give Berkshire control of the World-Herald, six other daily newspapers and several weekly newspapers across Nebraska and Southwest Iowa, according to a company statement today. Sellers include employee shareholders and the Peter Kiewit Foundation.

Buffett is putting aside doubts about the industry after telling shareholders in 2009 that many papers have “potential for unending losses” and that he wouldn’t buy most of them “at any price.” Publishers have lost revenue as readers shift to other media including the Internet.

“He’s rooting for the home team,” said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett.” “But he says it’s profitable and well-run, and it probably cost next to nothing.”

The World-Herald is 80-percent owned by its employees and 20-percent held by Peter Kiewit Foundation, the paper said today in a news story about the deal. It’s the No. 49 newspaper in the U.S. by daily distribution of the print edition, the newspaper said. Terry Kroeger, the company’s CEO, will stay with the business after the acquisition, Berkshire said.

Newspaper Holdings

Buffett, in his fifth decade as CEO of Berkshire, won a Pulitzer Prize -- the industry’s highest honor -- for investigative reporting in 1973 as owner of the Omaha Sun. The paper was cited for an analysis of funding at Boy’s Town, a local charity, according to Alice Schroeder’s biography, “The Snowball, Warren Buffett and the Business of Life.”

Berkshire’s holdings include Business Wire, which distributes press releases to the media. Buffett’s firm is also the biggest shareholder of the Washington Post Co. (WPO) and owner of the Buffalo News of New York.

“It’s a business which has been overly maligned for having lost its relevance,” said Thomas Russo, a partner at Berkshire investor Gardner Russo & Gardner. “I suspect the price is such that he can pencil out a return.”

Chopping Down Trees

Buffett has been among the industry’s critics and derided the newspaper model at Berkshire’s 2008 annual meeting, according Matthews’s book.

“Imagine that someone came along saying, ‘I have a great idea: Let’s chop trees down, buy expensive printing presses, and buy a fleet of delivery trucks, all to get pieces of paper to people to read about what happened yesterday,’ ” Buffett said, according to Matthews.

The World-Herald is the largest employee-owned newspaper in the U.S., with a news staff of about 200 who produce morning and evening editions, according to its website.

Joel Long, the World-Herald’s spokesman, wasn’t available for comment.

The purchase won’t have much impact on the overall performance of Berkshire Hathaway, which generated $136 billion in revenue last year and $13 billion in profit on activities that include insurance, running utilities and railroads, real estate, manufacturing and retailing.

Brand Names

Brands include Geico insurance, Fruit of the Loom underwear and Dairy Queen ice cream. Berkshire is among the biggest stakeholders at banks including U.S. Bancorp and Wells Fargo & Co., and Buffett has come to the aid of financial firms such as Goldman Sachs Group Inc. and Bank of America Corp. with capital injections. He didn’t respond to an e-mailed interview request.

Berkshire’s Class A stock rose 3 percent to $116,389 as of 12:40 p.m. in New York.

As for the World-Herald, “it’s very difficult to see this as a financial investment,” said Meyer Shields, an analyst with Stifel Nicolaus & Co. who has a “hold” recommendation on Berkshire’s stock. Buffett has “a desire to cultivate his legacy, and if he can control the first draft of history, that makes it a little bit easier.”


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CNBC: Warren Buffett's Berkshire Hathaway Buys Omaha Newspaper Despite Industry's 'Terrible' Future

Published: Wednesday, 30 Nov 2011 | 10:22 AM ET
By: Alex Crippen
Executive Producer


Omaha World-Herald masthead
Warren Buffett's Berkshire Hathaway is buying the owner of Omaha's daily newspaper, the World-Herald.

In a news release, Buffett is quoted as saying the World-Herald "delivers solid profits and is one of the best-run newspapers in America."

The release also notes that Buffett sees the purchase as "consistent" with a past owner's "vision for local ownership."

The purchase is somewhat surprising, as Buffett has often conceded that while he loves newspapers, the industry doesn't have a very bright future.

In a live interview in November, 2009 on CNBC's Squawk Box, Buffett told Becky Quick that newspapers have a "terrible" future as people increasingly turn to online sources of news.

At the 2009 Berkshire shareholders meeting, Buffett said the changing media environment now means newspapers "have the possibility of unending losses" and he didn't "see anything on the horizon that causes that erosion to end."

As a result, he said then that Berkshire would not buy most of the newspapers in the U.S. "at any price."

But he also promised shareholders that Berkshire would not sell the Buffalo News. "On an economic basis you should sell this business. I agree 100 percent, but I am not going to do it."

Buffett's love of newspapers goes back decades. Berkshire has held a the largest institutional stake in the Washington Post Company since the 1970s. He only recently retired from that company's board after 37 years. At the time, he told the Wall Street Journal he would never sell a share of the Post because "it has all kinds of meaning to me."

He fondly recalls delivering almost 500,000 copies of the Post while he was growing up in Washington.

Buffett also had a long-running friendship with Katherine Graham starting in the 70s when she was publisher of the Post. Graham died in 2001.

Washington Post Company Executive Committee Chairman Katharine Graham in a 1997 file photo.
AP
Washington Post Company Executive Committee Chairman Katharine Graham in a 1997 file photo.

In today's release on the World-Herald purchase, Buffett says he's "delighted to report that the editorial independence that Nebraskans and Iowans have come to expect from the World-Herald will continue."

The release has Buffett noting the purchase is "consistent with Peter Kiewit's vision for local ownership" of the newspaper, a vision that prompted Kiewit to buy the company in 1962.

Terry Kroeger, CEO of the Omaha World-Herald Company, says its employee-ownership structure was "restrictive and limited the ability to raise capital from non-employees." There's also the "ongoing need to repurchase stock from existing employees."

In the release, Kroeger says, "We have repurchased the Company about seven times since the employee ownership plan was put in place."

Buffett's offer, he says, "presented a unique opportunity to address our long-term capital needs and continue local ownership of the Omaha World-Herald, which is consistent with the legacy left to us by Mr. Kiewit."

In its article on the deal, the World-Herald details the history of its local ownership going back to its founding in 1885.

The deal is expected to close in December and still needs to be approved by regulators.

Current Berkshire stock prices:

Class B: [BRK.B 77.77 2.64 (+3.51%) ]

Class A: [BRK.A 116720.0078 3720.0078 (+3.29%) ]


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