Lee Enterprises announced a compromise Tuesday with billionaire investor David Hoffmann, who offered to take over the nation’s third-largest newspaper chain this year, to help stabilize the company’s finances with a $50 million investment and set Lee up for the future.
Hoffmann, whose family investment firm already owns more than 40 other publications, will become Lee’s chairman as he continues to pursue his goal of becoming the country’s largest newspaper publisher. He has said in recent interviews that he believes newspapers can continue to play an important role in covering local communities and build a successful digital subscription business.
Lee said that when Hoffmann takes over, CEO Kevin Mowbray will retire after 39 years with the Davenport, Iowa-based company, which owns the St. Louis Post-Dispatch, Buffalo News, Omaha World-Herald and dozens of other publications in 25 states.
“With improved financial stability and a clear governance framework in place, the focus can now be on disciplined execution and long-term value creation,” said Hoffmann, who declined to comment beyond the statement on the deal.
He built his initial fortune through the DHR Global executive search firm he founded and went on to set up his investment fund. It now includes more than 125 brands and 22,000 employees and is set to become the controlling owner in the Pittsburgh Penguins next year.
Stay up to date with the news and the best of AP by following our WhatsApp channel.
Follow on
The test will be whether Hoffmann and Lee reinvest in newsrooms to strengthen coverage of high school sports and other local institutions like he has talked about after he takes over, said Tim Franklin, a professor and chair of local news at Northwestern University’s Medill School of Journalism.
In recent years Lee — like many news companies — has cut staff and sold off some of the real estate its newspapers own as advertising and website traffic declined. Many Lee publications also stopped printing on Mondays.
The company also struggled with $455.5 million of debt taken on when it bought Warren Buffett’s newspapers from Berkshire Hathaway and refinanced its existing debt. Lee said the new infusion from Hoffmann and other investors will allow it to reduce the interest rate on that debt from 9% to 5% and to save about $18 million a year.
“Lee’s back was up against the wall. And I think it was looking for a way to stabilize the business,” Franklin said.
Buffett and incoming Berkshire CEO Greg Abel did not respond to questions Tuesday, but before selling off Berkshire’s newspapers, Buffett concluded the industry was “toast” and destined for an unending decline.
Unlike when Lee fought off a takeover bid from the Alden Global hedge fund three years ago, the publisher’s board has embraced Hoffmann’s approach.
Hoffmann agreed to buy $35 million of new Lee stock at $3.25 per share to go along with the 9.8% of the company’s stock he already controlled. Other investors will put up $15 million.
Lee shares soared more than 20% Tuesday to close at $4.50 after the news was announced.
“The question is going to be, is Hoffmann going to make that investment in original unique local reporting that will drive digital subscriptions, which he seems to believe is a cornerstone of his business model,” Franklin said.
