1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Stepan Lavrouk
Stepan Lavrouk
Articles (627) 

Warren Buffett's Berkshire Hathaway Bets on Scripps

The anatomy of the guru's latest deal

A lot of Warren Buffett (Trades, Portfolio) watchers have wondered when the Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) chief would loosen up the purse strings and start spending the massive cash mountain that the company has built up over the last several years. That's not to say that the conglomerate has been completely inactive - it took a $500 million stake in gold miner Barrick Gold (NYSE:GOLD) and data company Snowflake (NYSE:SNOW), both of which are pretty unusual moves for Berkshire.

Buffett has on numerous occasions said that he doesn't like gold as an investment, and that he doesn't understand the tech sector enough to make good investment decisions in it. With that being said, it's entirely possible that neither Buffett nor his partner Charlie Munger (Trades, Portfolio) were behind these decisions - Berkshire's other managers enjoy a lot of autonomy, and have different opinions and competences to their bosses. Regardless, Berkshire's most recent investment - in TV station owner E.W. Scripps (NASDAQ:SSP) - has Buffett's ideological fingerprints all over it. Here's how it was structured.

A sweetheart deal

Berkshire has committed $600 million to help finance a takeover deal that would see Scripps buy out broadcasting company ION Media to the tune of $2.65 billion. The investment nets Berkshire preferred shares of Scripps, as well as a warrant to purchase 23.1 million shares of the business, exercisable at $13 (shares of Scripps are currently trading at around $11).

The deal looks like a win-win for Buffett - either the merger goes well and Berkshire is able to exercise its warrant and pocket the free money, or it doesn't, in which case Scripps still has to pay Berkshire an 8% dividend on its preferred stock, which will rise to 9% if the TV station operator is not able to pay on time (which it would presumably pay by issuing more stock).

It can be difficult to get a good return in a near-zero interest rate environment, which Buffett obviously understands and has been able to use his enormous cash pile and clout to secure very favorable deals. When the markets crashed back in March and governments and central banks stepped in to backstop business, there was a lot of hand-wringing about whether Berkshire would ever be able to act as the lender of last resort again - why call sharks like Buffett and Munger who will try to negotiate as good a deal as possible, when Stephen Mnuchin and the U.S. Treasury will offer much better terms? This Scripps deal should allay at least some of those concerns.

Disclosure: The author owns no stocks mentioned.

Read more here:

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

About the author:

Stepan Lavrouk
Stepan Lavrouk is a financial writer with a background in equity research and macro trading. Specific investing interests include energy, fundamental geoeconomic analysis and biotechnology. He holds a bachelor of science degree from Trinity College Dublin.

Rating: 0.0/5 (0 votes)


Please leave your comment:

Performances of the stocks mentioned by Stepan Lavrouk

User Generated Screeners

pascal.van.garsseHigh FCF-M2
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)