The deal to sell Richmond’s main newspaper took shape quickly.
Media General, The Times-Dispatch’s parent company, needed two things: to sell its newspapers and to refinance hundreds of millions of dollars in debt with a looming due date.
Marshall Morton, who has been at the helm of the Richmond-based media company since 2005, never dreamed that one company would meet both needs.
But then along came a nibble out of Omaha.
“Here comes Buffett, who doesn’t need to worry about whether the bankers like it or not,” Morton said.Media General put forth a proposal on a Thursday, and Berkshire Hathaway, Warren Buffett’s investment company, came back with questions and terms of its own by the following Monday.
A few days later, Morton and the top brass at Media General were in business with Buffett.
Morton sat down with Richmond BizSense last week at his office on the top floor of Media General’s downtown headquarters to discuss how the deal came to be, how the company got in trouble in the first place and what he’s learned as a leader.
As part of the deal, which is set to close at the end of June, Berkshire Hathaway’s BH Media Group will purchase almost all of Media General’s newspapers, including the Richmond Times-Dispatch, for $142 million in cash.
The larger side of the deal includes $445 million in loans and credit lines that give Media General better terms on its debt than it could find elsewhere. In addition to taking the newspaper, Buffett’s company also grabbed a 20 percent ownership stake in what’s left of Media General.
It’s a deal that made national headlines for giving newspapers a shot in the arm. It also bailed out Media General after years of big losses, declining newspaper revenue and a seeming inability to solve its print vs. online conundrum.
When Media General began to seriously consider selling its newspapers, it put the word out through investment bank JPMorgan.
“The decision was something that had been percolating for several months,” Morton said.
Interest came from all over.
There were private equity firms that Morton said “perhaps saw themselves as the middleman for quick flips.”
Large media companies kicked the tires, as did area residents who wanted to keep the Times-Dispatch locally owned.
“They were the emotional players — local hometown men and women or families that have a lot of dollars,” Morton said.
Even Media General Chairman J. Stewart Bryan’s family roots at the paper weren’t enough to keep it out of the Berkshire deal.
“It was a very difficult decision,” Morton said. But keeping the Times-Dispatch in the fold for nostalgia’s sake wasn’t an option.
“It was never entertained,” Morton said. “It had to be an all-or-nothing kind of approach.”
In the end, Media General was guided by its status as a publicly traded company. That means shareholders, investment banks, bond companies and credit rating agencies all come before hometown loyalty.
Many of the company’s newspapers have managed to stay profitable via reductions in staffs and printed pages.
But those cuts couldn’t maintain the kinds of profit margins that shareholders had grown to love in the heyday of the newspaper business.
“As a public company, you have to go after the best opportunity for shareholders,” Morton said. “The best opportunity lay in the digital/broadcast side.”
For Buffett and Berkshire, the smaller margins are acceptable because they are part of a huge pool of investments.
“He’s spread his risk over a lot of things,” Morton said.
Although the bulk of its cash flow — 87 percent in the first quarter — comes from its TV stations, owning newspapers put Media General at a disadvantage when it came time to renegotiate its huge debt load.
That blindsided Media General, Morton said.
“The banks who had lent us the money no longer wanted to lend to media companies,” Morton said. “They just don’t have confidence in newspapers. You can talk until you’re blue in the face about the value of newspapers in communities, but if you can’t get capital …”
Beyond the debt, Media General faced a double whammy: a revenue-killing recession and the “free news” reality of the Internet.
Publishing revenues are down about 50 percent over the past five years, Morton said, but much of the costs — printing presses, delivery drivers, etc. — have held steady.
“There was nowhere to hide from these revenue declines,” Morton said.
“Over the past five years, our first thought was that this was heavily due to the recession and, like many other recessions in the past, that this was a cycle. You tighten your belt, freeze hiring and even drop the number of people.
“So we went through a couple years thinking that was the way to handle it. But it kept going.”
It wasn’t until the second quarter of 2011, Morton says, “that we realized the world had changed.”
Born in Chicago and raised in Charlottesville, Morton came to Richmond in 1989 to work for Media General after leaving a textile company in Georgia.
A UVA grad, Morton was a number cruncher, not a newspaper man. Stewart Bryan, now the company’s chairman, was on the verge of becoming chief executive at the time. Morton was hired as CFO.
“I was looking for a job at the same time Media General was looking for a finance guy,” he said.
He took over as CEO in 2005.
“Obviously, I’ve learned on the run about the media side,” he said.
When asked whether he blames himself for company’s losses or for not better balancing print and online products, Morton said: “Of course you question whether there were things you could have done otherwise. You don’t try to sidestep the responsibility.”
Morton said he is well aware of the criticism that has been aimed at him over the past few years. That includes finance bloggers who said Morton’s compensation was far too generous given the company’s performance.
“I’m not going to dispute that we got in trouble,” he said. “But there have been some bloggers who never talked to us or tried to explore issues. They are drawing conclusions from a 50,000-foot analysis. It’s fun to take potshots at people’s decisions.”
Morton said he’s also learned some lessons.
“I learned how to distinguish between a cycle and a trend,” he said, referring to the difference between a recession and the Internet’s effect on newspaper revenue.
“I failed to appreciate what we thought was a cycle but clearly was a trend.”
The lingering problem facing big newspaper companies is perhaps best expressed through Morton’s thoughts on the future of print.
Print, he said, is on its way out.
“They know they are the odd guy out,” he said of people holding on to the print version of newspapers. “The tactile aspect is just a habit.”
But he’s among them, he said.
“I’ll keep getting the paper as long as I can.”