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case analysis of Buffett’s Bid for Media General’s Newspapers

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Buffett’s Bid for Media General’s Newspapers
Situation:
Media General is a mature company which has a lot of business including newspapers, television broadcasting and digital businesses primarily serving the southeastern U.S. (Over 18 TV stations and 64 newspapers). While because of the popular of Internet from the 2000s, more than 300 daily newspapers disappeared and daily circulation of newspapers fell to 44 million in 2011, the U.S. newspaper industry is dropping. With the decreasing market, the profitability of newspaper industry is declining. Newspaper revenues came from two sources: advertising and circulation representing approximately 80% and 20% of revenue, respectively. But between 2000 and 2010, annual
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Support-quant and QUAL analysis:
Before we make the decision, we need to know the value of the Media General and the value of this offer. So we forecast the value of company by DCF model.

2012
2013
2014
2015
2016
+EBIT*(1-T)
9.23
8.91
13.85
18.27
19.49
+Dep
20.0
16.0
12.0
9.0
6.0
-CAPEX
5.0
5.5
5.9
6.0
6.0
-Change in NWC
-0.6
-0.3
0.3
0.3
0.3
FCFF
23.63
19.11
19.65
20.97
19.19
PV
20.28
14.08
12.42
11.38
8.94

Terminal rate=2.0% PV of Terminal=62.91
Total=67.11+62.91=130.01 million
From DCF model, we calculated the value of company, it is about $130.01 million.
Then, we need to forecast the value of the offer.
Berkshire’s offer consisted of two inseparable parts, an asset agreement and a credit agreement.
Total value of the offer is $142 million.
Solution & Decision
Strategy 1: Accept the Berkshire’s offer.
From the part 2 calculated, we can see that the value of company is about $130.01 million, and Berkshire’s offer is about $142 million higher than the value of company. The offer’s Credit Agreement can cover the current debts of company, and its Asset Purchase part also provide $142 million cash which can make the company has a better operation and reduce the managers’ pressure. So the managers of Media General can accept this offer.
Strategy 2: Looking for other investor and restructure the company’s business.
In this strategy, Media General’s managers need to find other
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