Billionaire Warren Buffet is selling BH Media Group (BHMG), which owns 30 daily and more than 49 weekly newspapers, to Lee Enterprises Inc. for $140 million in cash. The deal also includes The Buffalo News, but it does not include BHMGs real estate holdings or cash. Lee will, however, lease BHMGs real estate for 10 years. Lee provides news, information and advertising in 50 markets in 21 states. The Davenport, Iowa-based Lee owns 46 daily newspapers, 300+ weekly publications and has 1.1 million newspaper subscribers and 73 million monthly digital views. In 2019, BHMG had revenue of $373.4 million and adjusted EBITDA of $47.4 million. Lee has managed the groups publications since July 2018. The deal will nearly double Lee’s size.
Berkshire Hathaway is providing approximately $576 million in long-term financing to Lee at an annual interest rate of 9%. The proceeds from this loan will pay for the acquisition, refinance approximately $400 million of Lees debt, and provide cash to terminate Lees revolving line of credit. Subject to customary regulatory approvals, the deal is expected to close mid-March.
This is a compelling and transformative transaction for Lee. It both refinances our long-term debt on attractive terms and provides new revenue opportunities as well as operational synergies across an expanded portfolio. We have enjoyed a strong, long-term relationship with Berkshire Hathaway, which has been a significant investor across our capital structure for years. As manager of BH Media for the past 18 months, we have developed a deep knowledge of these properties and tremendous respect for their operators, said Mary Junck, Lees chairman, in a statement.
We know first-hand the power this acquisition brings for further accelerating our industry-leading digital revenue growth while maintaining our focus on delivering high-quality local news. We look forward to capturing the tremendous value of this transaction for readers, advertisers and shareholders, Junck added.
The acquisition will grow Lees operation to 81 daily newspaper and nearly double its size. It will also increase revenue by an estimated 87% and adjusted EBITDA by 40%. Lee estimates $20 million to $25 million of annual revenue and cost synergies. Some of the synergies include revenue synergies from the management of digital advertising and subscriber programs and cost synergies from the reduction in administrative expenses. Full synergy is expected within 24 months of the deals completion.
My partner Charlie Munger and I have known and admired the Lee organization for over 40 years. They have delivered exceptional performance managing BH Medias newspapers and continue to outpace the industry in digital market share and revenue. We had zero interest in selling the group to anyone else for one simple reason: We believe that Lee is best positioned to manage through the industrys challenges. No organization is more committed to serving the vital role of high-quality local news, however delivered, as Lee. I am confident that our newspapers will be in the right hands going forward and I also am pleased to be deepening our long-term relationship with Lee through the financing agreement, said Warren E. Buffett, Berkshire Hathaways Chairman and CEO.
This represents the first major newspaper contraction of 2020. The next one could be Alden Global Capitals expected acquisition of Tribune Publishing which could take place on or after June 30. In November, Alden increased its stake in the publisher to 32%, but agreed to put further expansion until June 30 in exchange for two board seats on Tribune Publishing.
Since Lee Enterprises has already been managing BHMGs newspaper group, the relationship seems to be a good pairing. Buffet and his company Berkshire Hathaway let Lee take their newspapers for a trial run, starting in 2018, and Lees team must have impressed them. This represents yet another contraction in the newspaper industry which has been slow to change its ways. At least with this deal, one newspaper group is buying another, so the assumption is they hold similar values, and they value quality, local journalism. The same is not necessarily true when a hedge fund buys a newspaper group for the primary purpose of profit. Who will be next?