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Strategy Consulting: Session 4 Declining Industries Buffet'S Bid For Media General'S Newspapers

The document discusses Warren Buffett's bid to purchase Media General's (MEG's) newspaper division. Buffett offered MEG penny warrants that would allow Berkshire Hathaway to purchase MEG shares at a deep discount, as well as an $400 million loan at an 11.5% discount. This would provide MEG with immediate cash while also giving Berkshire potential upside if MEG's stock price rises in the future. However, the key question is whether MEG's newspaper division is actually worth the $142 million purchase price that Buffett offered. MEG must decide whether accepting the bid is the best strategic choice going forward.

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Prashant Jhakarwar
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237 views13 pages

Strategy Consulting: Session 4 Declining Industries Buffet'S Bid For Media General'S Newspapers

The document discusses Warren Buffett's bid to purchase Media General's (MEG's) newspaper division. Buffett offered MEG penny warrants that would allow Berkshire Hathaway to purchase MEG shares at a deep discount, as well as an $400 million loan at an 11.5% discount. This would provide MEG with immediate cash while also giving Berkshire potential upside if MEG's stock price rises in the future. However, the key question is whether MEG's newspaper division is actually worth the $142 million purchase price that Buffett offered. MEG must decide whether accepting the bid is the best strategic choice going forward.

Uploaded by

Prashant Jhakarwar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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STRATEGY CONSULTING

SESSION 4
DECLINING INDUSTRIES
BUFFET’S BID FOR MEDIA GENERAL’S NEWSPAPERS

PGP II
June 2018
STRUCTURAL DETERMINANTS OF COMPETITION IN DECLINE

CONDITIONS OF DEMAND EXIT BARRIERS

• Uncertainty • Durable and Specialized Assets

• Rate and pattern of Decline • Fixed Costs of Exits

• Structure of remaining demand pockets • Strategic Exit Barriers


• Interrelatedness
• Causes of Decline • Access to Financial Markets
• Technological Substitution • Vertical integration
• Demographics • Information Barriers
• Shifts in Needs • Managerial or Emotional Barriers
• Government and Social Barriers
VOLATILITY OF RIVALRY
FIRM’S CHOICE OF STRATEGIES IN A DECLINING INDUSTRY
BUFFET’S BID FOR MEDIA GENERAL’S NEWSPAPERS
WHY DOES WARREN BUFFET WANT TO BUY

MEG’S NEWSPAPER DIVISION?


PENNY WARRANTS

Penny Warrants would allow Berkshire to buy 4.65 million MEG shares
(19.9% of the company) within 8 years, for a penny per share. (page 5)

4.65 mn. MEG shares X [ $4.18 - $ 0.01 ] = $ 19.4 mn.

Berkshire will have an immediate gain of $ 19.4 mn., and more if MEG
share price rises.
LOAN TO MEG

MEG needs to pay back a loan of $ 225 mn. in 8 days.

Buffet’s offer: $ 400 mn. at 11.5% discount at face value.

Therefore, MEG would receive $ 354 mn. upfront.

Berkshire will gain $ 65 mn. from the credit arrangement


($ 46 mn. from the loan and $ 19 mn. from penny warrants).
IS MEG’S NEWSPAPER DIVISION WORTH $ 142 MN. ?
What should meg do ?

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