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Warren Buffett’s Warrants Shine in Media General Deal

Warren Buffett’s firm, Berkshire Hathaway, is seeing past investments in media firm Media General pay off as the firm is working towards closing a merger deal with LIN Media.

In 2012, Berkshire made an investment worth $142 million in cash in buying 63 newspapers from the media conglomerate. Moreover, Buffett’s firm agreed to supply Media General with a $400 million loan to the broadcaster, as well as a revolving credit line worth $45 million. Media General was, at that moment, n financial disarray, needing the money provided by Berkshire Hathaway in order to be able to pay its balance sheet. The deal between the two firms also included Berkshire Hathaway to be the recipient of penny warrants for approximately 4.6 million dollars of the company’s Class A shares- which came at about 20% of their outstanding stock at the time.

Penny warrants are forms of derivative securities that give the holder, in this case, Berkshire Hathaway, the right to purchase securities (usually equity) from the issuer at a specific price in a certain period of time. During the 3rd quarter of 2012, Berkshire Hathaway converted its Media General penny warrants into common stock- a move that would prove to be extremely smart in the future. The deal made with Media General, including here the 10,5% interest loans and the warrants paid off rather quickly for Warren Buffett’s firm.

In August of last year, Young Broadcasting and Media General struck a merger deal through which the outstanding debt of the company came to be refinanced at much lower interest rates than the Berkshire Hathaway deal. Media General was in desperate need of a refinancing plan. The plan decided involved Media General taking out a $885 million loan on a seven years term with an interest rate of LIBOR plus 3,25% with a 1% LIBOR floor. Moreover, Media General took a 60 million dollars revolving credit for five years. As complicated as the refinancing plan may sound, the deals managed to cut the financial costs of Media General by 50%, also  managing to pay off the Berkshire Hathaway loans as well. Even more so, the plan led to providing Berkshire Hathaway with a $43,8 million prepayment.

The savviness of Warrant Buffett’s firm was proven in the purchasing the warrants, which, as I mentioned, were transformed in common stock. Due to this decision in 2012, Berkshire Hathaway is now the fifth largest share holder in Media General. Since acquiring the stocks through a warrants deal in 2012, Berkshire has not made any move to trade them.  Quite the opposite, Berkshire Hathaway further invested in the firm, acquiring a TV station in Miami, Florida for 365 million dollars.

Berkshire Hathaway is one of the most famous   American multinational conglomerate holding companies, its CEO being none other than Warren Buffett. Currently, Berkshire Hathaway holds shares in companies like Heinz, Coca-Cola, GEICO, BNSF, Lubrizol, Dairy Queen, Fruit of the Loom, Helzberg Diamonds and NetJets, Mars, Incorporated,  Express, Wells Fargo, and IBM. The company’s headquarters are located in Omaha, Nebraska. According to the Forbes 2000 list, Berkshire Hathaway is the 9th largest public company in the worth, owning businesses as varied as confectionary, retail, railroad, encyclopedias, vacuum cleaners, home furnishings, jewelry sales and several regional electric and gas utilities.

Warren Buffett is considered to be the financial whiz of the century, being world wide recognized as the most successful investor of the past and current century, as well as one of the most influential persons in the world. Buffett is also a great philanthropist, having made donations worth millions of dollars through the Gates foundation. Buffett is an adept of the Austrian school of economics which criticizes state interference in economy and supports the theory of laissez-faire economy.

This profitable deal can only mean that Berkshire Hathaway has made yet another successful investment which will probably return in considerable profit to the United States’ leading magnate and his company.

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