Lee Enterprises said Tuesday it has secured a $50 million investment with billionaire investor David Hoffmann, as the company seeks to stabilize its finances and set up its next phase of leadership and governance. Hoffmann will become the chairman of Lee Enterprises, which owns the St. Louis Post-Dispatch, the Buffalo News and the Omaha World-Herald, among other publications.
The investment is part of what Lee called a compromise with Hoffmann, whose family investment firm already owns more than 40 publications. Hoffmann’s aim, as he has described in recent interviews, is to help newspapers continue to cover local communities while building a successful digital subscription business, and he also has said he intends to pursue a path toward making the chain the nation’s largest newspaper publisher.
Lee said that when Hoffmann takes over, CEO Kevin Mowbray will retire after 39 years with the Davenport, Iowa-based company. Lee’s board has embraced the approach, the company said, in contrast with a prior period when Lee fought off a takeover bid from Alden Global Capital three years ago.
Hoffmann will buy $35 million of new Lee stock at $3.25 per share, along with the 9.8% stake he already controlled, and Lee said other investors will put up the remaining $15 million. After the announcement, Lee shares rose more than 20% to close at $4.50 on Tuesday.
Lee said it struggled with $455.5 million of debt taken on when it bought Warren Buffett’s newspapers from Berkshire Hathaway and refinanced its existing debt. The company said the new infusion would allow it to reduce the interest rate on that debt from 9% to 5% and save about $18 million a year.
Tim Franklin, a professor and chair of local news at Northwestern University’s Medill School of Journalism, said the key test will be whether Hoffmann and Lee reinvest in newsrooms to strengthen coverage of local institutions, including high school sports, after Hoffmann takes over. He said Lee’s financial position had become precarious, calling it “looking for a way to stabilize the business” as its options narrowed.
In recent years, Lee has cut staff and sold off some of the real estate its newspapers own as advertising and website traffic declined, and the company also stopped printing on Mondays in some publications. Buffett and incoming Berkshire CEO Greg Abel did not respond to questions Tuesday, but the reporting said that before Berkshire sold off its newspapers, Buffett had concluded the newspaper industry was “toast” and destined for an unending decline.
Hoffmann built his initial fortune through the DHR Global executive search firm he founded and later set up his investment fund, according to the report. The fund includes more than 125 brands and 22,000 employees, and is set to become the controlling owner in the Pittsburgh Penguins next year, the reporting said. Hoffmann declined to comment beyond a statement on the deal, but said Lee can focus on “disciplined execution and long-term value creation” once it has improved financial stability and a clear governance framework.