Buffett buys Gannett stake pg 10

By: George Garneau $300 million for 4.9% of biggest U.S. newspaper company
is shot in the arm for ailing newspaper stocks


WARREN BUFFETT, ONE of the nation's richest and most successful investors, has acquired 4.9% of Gannett Co. Inc., the biggest U.S. newspaper publisher.
The investment was worth $321 million, based on the market price of $47 a share, when Gannett disclosed the news Dec. 15. There was no way to know how much he actually paid to build the stake.
News of the acquisition sent Gannett's stock price 8% higher to $51 a share.
Other newspaper stocks, selling at 10% or more below year-ago prices, went slightly higher in sympathy buying.
Berkshire Hathaway, the publicly traded company Buffett controls, said it bought the stock as an investment. News of the deal sent Berkshire's stock price $400 higher to $20,400.
Buffett already has major newspaper holdings, through large blocks of stock in the Washington Post Co. and Capital Cities/ABC Inc., and through 100% ownership of Buffalo News, one of the most profitable newspapers in America, with operating earnings averaging over 30% of revenue.
Gannett, whose USA Today and 81 other dailies generate the vast majority of its $3.6 billion in annual revenue, said in a statement, "We are delighted that Berkshire Hathaway has shown this level of confidence in Gannett."
Buffett ? whom Forbes magazine called the nation's second richest person (after Microsoft founder Bill Gates) and the "world's most successful investor" ? is known for buying undervalued stocks and holding them for long-term appreciation. His fortune is estimated at $9.2 billion.
Analysts were mixed about the effects of Buffett's move. They generally viewed Gannett as a well-managed company that controls costs and generates high profit margins and had been neutral to positive in advising whether to buy Gannett in recent months.
"It's certainly a vote of confidence in newspapers by the nation's preeminent investor," said John Morton, a Washington-based analyst with Lynch Jones Ryan, who said the move surprised him. "It shows confidence in Gannett and the business. I don't know how you can separate the two."
Kevin Gruneich, an analyst with CS First Boston in New York, said the acquisition was clearly positive for Gannett but quickly added, "I don't think the announcement changes the reality of the industry ? that 1995 will be a difficult year. I think Buffett is a long-term investor and is willing to look beyond the margin pressure."
Newspaper stock prices have suffered from fears of soaring newsprint prices and concerns about the long-term health of newspapers in the face of expanding electronic media. Prices are so low that several major companies, believing their stocks are undervalued, are spending millions of dollars to repurchase their own shares.
"I think he saw a company that had its stock beaten down and has some very positive characteristics, including free cash flow and price flexibility," Gruneich said.
While Buffett's buy may calm fears of investors who view newspapers as a dying business, it is more reflective of his confidence in Gannett than in newspapers in general, Gruneich said.
Morton, who expected newspaper stock prices to strengthen when newsprint prices level off, perhaps in 1996, suggested that Buffett's investment could be an early sign of the upswing.