Premium ContentMouse over Home then click on Premium Content for information.Video: Kroeger and Buffett's comments on the sale
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Walter Scott and Mogens Bay were fishing for salmon and halibut on Alaska's inland waterway last summer, but it was Warren Buffett who ended up making the big catch.
Scott, a longtime friend and business associate of Buffett's, was a key figure in Buffett's decision to purchase the Omaha World-Herald Co., a $200 million transaction made public Wednesday and due to take place by the end of 2011.
"The matchmaker in this whole thing is really Walter Scott," said Bay, CEO of Valmont Industries of Omaha and a trustee of the Peter Kiewit Foundation, which owns 20 percent of The World-Herald.
The sale, subject to a Dec. 20 vote of World-Herald shareholders and the foundation, would resolve a long-term financial problem for the newspaper: how to pay off its older employee shareholders as younger employees were buying fewer shares of stock.
World-Herald CEO Terry Kroeger said the company has been profitable, even through the 2008-2009 recession, but eventually would need more money as shareholders cash in their stock. "There was far more cash leaving the business than coming in," he told World-Herald shareholders as he announced the proposed sale during a meeting at the Holland Center in downtown Omaha.
As a Kiewit Foundation trustee, Bay was aware of the capital problem at The World-Herald. But it was Scott who brought up the subject during the weeklong fishing trip aboard Scott's boat.
"You have a lot of time to talk when you're fishing," Bay said. "Walter and I had a conversation. He was talking about the more-challenging environment for the newspaper industry in general. He's very familiar with employee ownership because of the Kiewit companies.
"He thinks about the issues in the community and what he can do to solve them or make the community better. He was kind of foreseeing what the newspaper was dealing with, on the one hand creating capital for growth, and at the same time creating capital for the employee owners who were retiring. He kind of suggested that maybe it would be a good idea if Terry Kroeger came to see him and talk.
"I called Terry and said, 'You may want to have a conversation with Walter about what goes on in the community and if you have any concerns regarding the capital structure of the newspaper.' "
After a series of meetings, Bay said, "Walter approached Warren, and the rest is history."
Scott was in a unique position to shepherd the proposed purchase. He succeeded Peter Kiewit as chairman and CEO of Peter Kiewit Sons' Inc., the Omaha construction and mining company. Its employee ownership plan served as a model for The World-Herald's. In the years after Kiewit's death in 1979, Scott headed the Kiewit company while the plan for employee ownership at the newspaper went into effect.
Scott serves on Berkshire's board of directors and has worked closely with Buffett on several acquisitions. Kiewit's headquarters at 36th and Farnam Streets rents office space to Berkshire.
The World-Herald's board and the Kiewit Foundation trustees had set up committees to find a solution to the newspaper's looming capital problem. Bay and Omaha CPA John Hancock made up the foundation committee.
"We thought some friendly person might come in and put in a capital infusion in preferred stock," Hancock said. "We didn't realize that anybody would step forward to buy the whole thing."
On Oct. 3, Kroeger met with Scott, spending about 45 minutes on a "high-level overview" of The World-Herald. Scott said, "Let me visit with Warren, and we'll see what we can do."
On Oct. 18, Kroeger was at a Chicago airport when Bay called and reported: Scott called and said, "Warren would like to buy the company."
"I was stunned," Kroeger said. Even though the company hadn't figured out a solution to its capital problem, it had not been considering a sale.
He met with Scott again on Oct. 21. Then, on Oct. 24, Scott called again, this time reaching Kroeger at the Dallas airport. Scott said Buffett wanted to see The World-Herald's financial statements, which were sent to him that afternoon.
About 11 the next morning, Buffett called Kroeger and asked for a visit. Kroeger went to Buffett's office about 1:30 p.m., spending about a half-hour answering questions. Buffett offered to buy the newspaper company for about $150 million in cash, plus a $50 million debt that will remain the newspaper's responsibility.
Buffett also said he wanted Kroeger's management group to stay in place and said the newspaper would have "full independence and that he would not interfere with our editorial policies or operations," Kroeger said, noting that the newspaper often takes editorial positions contrary to Buffett's political views.
Kroeger met the following morning with John Gottschalk, the newspaper company's chairman and former CEO.
On Nov. 3, The World-Herald's directors met and told Kroeger to move ahead with a sale. On Nov. 4, trustees of the Kiewit Foundation met and endorsed the plan, a key step because the foundation holds a veto over selling The World-Herald.
Attorneys began working on the proposal, and on Monday The World-Herald's board of directors approved a merger agreement with Berkshire.
Tuesday, representatives of the newspaper and the foundation received approval from Douglas County Judge Craig McDermott to revise legal documents so that the sale could proceed.
Kroeger called the meeting of World-Herald shareholders for Wednesday morning to announce the planned sale. If shareholders approve, the target date to complete the transaction is Dec. 23.
Contact the writer:
402-444-1080, steve.jordon@owh.com
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