Warren Buffett found a use for some of his company's cash Wednesday, paying $2.05 billion for the remaining 20 percent share of an Israeli tool-making company he purchased in 2006.
At the same time, he agreed to refinance $94 million in loans he made to Lee Enterprises, a newspaper chain based in Davenport, Iowa, reducing the debt's interest rate to 9 percent from 11.3 percent but gaining added collateral to back up the loan.
The moves come three days before Berkshire Hathaway Inc. shareholders attend their annual meeting in Omaha and hear Buffett, the chairman and CEO, and Vice Chairman Charlie Munger discuss the company's operations and future.
Buffett has lamented the buildup of Berkshire's cash, now at about $35 billion, saying he would rather buy large “elephant” businesses to add to Berkshire's stable of more than 80 operating companies. Those businesses add about $1 billion a month to Berkshire's cash.
International Metalworking Cos. of Israel, also known as Iscar, was the first company Berkshire acquired outside the United States and has served as an example of the type of foreign business Buffett might buy.
Berskhire acquired 80 percent of IMC in a $5 billion transaction. Buffett said Wednesday that the price of the remaining share, owned by the family of founder Stef Wertheimer, shows that IMC has “matured into a truly global enterprise.”
“As you can surmise from the price we're paying for the remaining interest, IMC has enjoyed very significant growth over the last seven years,” Buffett said in a press release. IMC makes tools in the U.S., South Korea, Brazil, China, Germany, India, Italy and Japan.
IMC Chairman Eitan Wertheimer said that the company has “a permanent home” in Berkshire and that its growth since 2006 “validates the faith that Warren and Charlie showed in our business and the special people in Tefen, Israel, and around the world who have made our success possible.”
The Lee transaction is in line with Berkshire's purchase of dozens of newspapers since 2011. Berkshire is a minor shareholder of Lee Enterprises, whose publications include the Lincoln Journal Star.
Lee said Wednesday that the new agreement would take effect later this month, extend the term of the loans from December 2015 to April 2017 and cancel interest rate increases due to take effect in 2014 and 2015.
Pulitzer Inc., a Lee subsidiary and owner of the St. Louis Post-Dispatch, will be a “co-borrower” on the debt. The refinancing agreement also adds Lee's 50 percent ownership of TNI Partners as collateral. TNI publishes the Arizona Daily Star in Tucson and azstarnet.com.
Lee Chairman and CEO Mary Junck said Lee and Berkshire “share a strong belief in the enduring value of our business and the opportunities for growth in local markets such as ours.”
The lower interest rate will allow Lee to pay off the debt sooner, she said. Lee said it is ahead of schedule in repaying its debt, which now totals $893 million.
The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.
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