• Charles Heighton

Buffett is on a spending spree

By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets

The Oracle of Omaha was eerily silent at the start of the coronavirus pandemic. He sold major positions and bought nothing. More recently though, he has been active. Starting with a rare investment in foreign companies, then an investment in Snowflake before its IPO. These plays are not in the traditional Buffett form, but could be just as lucrative.

The investment announced this week is much more akin to his regular playbook. Berkshire is investing $600 million in media group EW Scripps, in exchange for preferred equity that pays an 8% cash dividend. This also includes the option to buy just over 23 million shares of EW Scripps at a price of $13. This money is needed to fund the acquisition of ION Media.

Buffett has made securing a high yield in low yield environments a habit, by lending his name and huge cash pile to companies during difficult economic periods. This particular deal is very similar to the arrangement last year with Occidental Petroleum. This has not turned out perfectly, as the dividend has been paid in stock rather than cash as previously agreed. However, it is also reminiscent of the deals Buffett made in the last financial crisis with big banks like Goldman Sachs.

The question is, will the EW Scripps deal turn out to be problematic. Buffett is only funding a small part of the $2.65 billion deal. The acquisition will double the size of the television station and significantly increase its distribution of programming. Despite the shift away from traditional media, these stations have remained profitable due to large fees from cable packages. The deal is expected to generate half a billion in synergies over six years.

This is Berkshire’s first media deal in a long time and may turn out to be a genius play. While the TV station industry might be declining, the combined companies should be able to cover Buffett’s dividend, netting him a nice profit. The Oracle of Omaha seems to be back in business; maybe his buying signals the bottom of the crisis as it has previously. Only time will tell if this is true, but for now, it’s nice to see Buffett penning so many lucrative deals in a short period of time.

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