Buffett's Lee Enterprises (LEE) Stake Not All It's Cracked Up to Be

June 6, 2012 3:52 PM EDT
Big news in Buffett-land Wednesday was that the Oracle's Berkshire Hathaway (NYSE: BRK.a) disclosed a new 1,655,125 share stake in Lee Enterprises Inc. (NYSE: LEE). He held the stake at the end of the first quarter but only disclosed it Tuesday evening after a confidential treatment request with the SEC was denied. However, looking deeper at the investment shows that it may not be all it's cracked up to be.

In January 2012, as part of a prepackaged Chapter 11 process, Lee Enterprises implemented a refinancing to extend the maturities of its borrowings to December 2015 and April 2017. As part of the deal, second lien creditors were given approximately 6,744,000 shares of Lee Common Stock.

Guess who reportedly owned Lee second lien debt? That's right Buffett.

So in essence, a good chuck of Berkshire Hathaway's stock could have come in the way of this refinancing deal. Meaning they bought little, if any, Lee stock in the open market.

Still the question remains: Why did Buffett request confidential treatment on the position? - and - Why was it denied?

Shares of Lee are up 20 percent into the close.

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Jeff on 2012-06-07 12:45:50
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Just to add to my previous post, anyone who looked deeply into the SEC filings of Lee would know that a total of 6,743,640 shares of Lee stock would be issued. Since it then came out that Berkshire owned $85 million of Lee debt, it wasn't hard for people to put together 2 and 2 and figure out that Berkshire would get a significant chunk of those new shares. So the confidential treatment request was denied because there was nothing confidential about it in the first place.

Good article!

Why the request for confidential treatment
Jeff on 2012-06-07 12:32:01
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I strongly suspect it was because as you said, they got the shares for free and are trying to sell them without putting too much negative pressure on the price. To have to disclose them in the 13F filing would strongly (and incorrectly) imply that they bought the shares, which would create a buying frenzy, which of course we've seen the past couple of days.

Now, Berkshire is probably stuck with its Lee shares. It can't sell them now ino this "Buffett rally" without creating a lot of suspicion and possible issues with the SEC.

Disclosure: I am long Lee. (As much as I *wish* Lee could be a Buffett pick, I am definitely pessimistic about the reality of the situation!)

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