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Lee Enterprises New Chair 12/31 06:45
(AP) -- 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.
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 Capital
investment 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.
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