Berkshire Hathaway Inc. (A:US) reached a deal to acquire a Miami television station and some of the company’s own shares in a $1.1 billion swap for Graham Holdings Co. (GHC:US) stock that Warren Buffett held for more than four decades.
Buffett’s Berkshire will turn over 1.6 million shares of Graham, the former publisher of the Washington Post, in exchange for the WPLG TV station and an amount of Berkshire shares and cash that will be based on market prices when the deal is completed, the companies said today in a statement. The deal values the station at about $364 million, according to a regulatory filing today.
The agreement scales back one of Buffett’s most successful investments and recasts his relationship with a business to which he has had deep personal ties. In 1973, he purchased shares in Graham, then known as Washington Post Co., for about $11 million and later became a confidant of longtime Chairman and Chief Executive Officer Katharine Graham, who died in 2001. He served on the company’s board (GHC:US) twice, stepping down the second time in 2011.
“This is a mutually beneficial transaction for both companies,” Buffett, 83, said in the statement. “While this transaction will greatly reduce our position in Graham Holdings, our admiration for the company and its management is undiminished.”
Berkshire last month disclosed talks to wind down its Graham investment in a tax-free transaction. At the time, the Omaha, Nebraska-based company had about 1.73 million shares (GHC:US) of Graham, or about 28 percent of the company. Graham’s securities portfolio held about $444 million of Berkshire shares as of Dec. 31, according to the Washington-based company’s annual filing.
Berkshire advanced 0.1 percent at 10:24 a.m. in New York, bringing its gain for the year to 5.3 percent. Graham rallied 1.8 percent to $721.89, and is up 8.8 percent since Dec. 31.
“If you believe that Graham is significantly undervalued at current prices, then it is a credit,” said Charles De Vaulx, chief investment officer at International Value Advisers LLC, which manages a portfolio including Graham shares. “So far, we’re pleased.”
The deal makes Graham more reliant on its Kaplan education unit, which has a less predictable outlook than the television business, De Vaulx said. It also means Buffett is no longer a major investor.
“To not have Berkshire Hathaway as a significant shareholder is a big loss,” he said. “It’s a reassurance that’s no longer there.”
Graham Holdings changed its name last year after selling the Washington Post to Amazon.com Inc. CEO Jeff Bezos. The transaction left Graham with businesses including a cable provider, TV broadcast stations and Kaplan.
“Warren Buffett’s 40-year association with our company has been extremely good for our shareholders,” Donald Graham, the CEO of Graham Holdings, said in the statement. “The deal that we have put together is one that will be good for both companies.” The agreement is subject to regulatory approvals, and no binding agreement has been signed, according to the statement.
Graham’s cable-TV, Internet and phone services unit operates in 19 states. Graham owns stations in markets including Houston, Detroit and Orlando, Florida, according to the company’s annual report.
WPLG, which started operating in 1961, is an affiliate of Walt Disney Co.’s ABC, according to regulatory filings. The Miami market ranks as the 16th largest in the U.S. with about 1.66 million TV homes accounting for 1.4 percent of the country’s viewers, according to data from Nielsen as of Jan. 1.
Buffett, who counts a bet on Capital Cities/ABC as one of his most successful investments of the 1990s, has previously praised the prospects of television stations. In a 2008 letter to shareholders, he lamented his decision not to buy an NBC station in the Dallas area.
TV stations “required virtually no capital investment,” Buffett wrote. “They were simple to run and showered cash on their owners.”
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