Time Warner Rejects 21st Century Fox Bid, Murdoch Unlikely to Forgo Negotiations

Remy Merritt |

Time Warner stock, HBO, Rupert Murdoch, buyout, 20th century foxIt’s a game of 80’s. In June, business magnate and king of News Corp (NWSA) and 21st Century Fox (FOXA) Rupert Murdoch made Time Warner Inc. (TWX) a premium buyout offer of $80 billion, an offer that translates to $85 per share. Time Warner share value rose 15.83% at the news, jumping from $71.01 to open at $82.25. It is currently trading at an even higher $83.19 with no sign of a downturn. At 83 years old, Murdoch can still stir up the stock market.

HBO: Time Warner’s Golden-Egg Goose

Murdoch’s likely motive behind a Time Warner buyout is the lucrative HBO enterprise, Time Warner’s premium cable channel that claims success stories like The Sopranos and Game of Thrones. The cable conglomerate also holds other popular and profitable channels like TNT and CNN, and produces hits like primetime sitcom The Big Bang Theory and the Harry Potter film series at its Warner Brothers studios.

But few Time Warner holdings perform as well as HBO. In an April earnings report, the corporation placed HBO’s quarterly revenue at $1.3 billion, a 9% increase over the same quarter last year. That same report revealed a 36% operating profit margin for the channel, placing HBO ahead of Walt Disney (DIS) and Netflix (NFLX) combined and making it the strongest performer in Time Warner’s network portfolio.

Despite Murdoch’s hefty offer, Time Warner CEO Jeff Bewkes rebuked the proposal. The rejection is a good indicator of a self-assured Time Warner board of directors, suggesting the media conglomerate has no concerns with its ability to continue performing with impressive margins. Fox shares have suffered from the rejection, dropping by just under 5%.

If fulfilled, the merger would require certain channels to be sold off to appease anti-trust concerns, most notably between CNN and Fox News. Fox executives have estimated at least $1 billion in combined corporate cost savings should Time Warner accept, primarily generated from cuts to staff and back-office functions.

TWX Stands Its Ground in the Midst of a Merger Season

There have been multiple strategic mergers and spin-offs in the media industry as of late. AT&T (T) is petitioning a $48.5 billion purchase of DirecTV ($DTV), and Comcast (CMCSA) has lined up a potential $42.5 billion merger with Time Warner Cable (TWC) . Separate from Time Warner Cable, Time Warner Inc. itself has undergone internal changes, finalizing a breakup with its magazine publishing division Time Inc ($TIME) on June 6.

When asked about the magazine publishing spinoff, Bewkes stated it “completes the process we began several years ago to position Time Warner as the world’s leading video content company.” With more focus on media production, Time Warner is making clear moves to stand alone as a powerful force in film and television.

Murdoch Likely to Return with New Strategy

The continuing climb in Time Warner stock value suggests shareholders know Murdoch well. The seasoned Wall Street tycoon is unlikely to give up after the first attempt — if he truly wants Time Warner he will find a way to acquire it, possibly in the form of an even higher buyout price. A merger between 21st Century Fox and Time Warner would create one of the largest media corporations in the world, with yearly revenues of about $65 billion.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TWC Time Warner Cable Inc n/a n/a n/a 0
TWX Time Warner Inc. New 93.43 0.09 0.10 3,942,136
DIS Walt Disney Company (The) 100.12 0.16 0.16 3,911,717
NWSA News Corporation 11.79 -0.03 -0.21 1,279,892
TIME Time Inc. 16.10 0.10 0.63 590,312
NFLX Netflix Inc. 123.95 4.79 4.02 6,158,684
T AT&T Inc. 39.21 0.58 1.50 12,526,310
FOXA Twenty-First Century Fox Inc. 27.46 -0.10 -0.36 5,539,716
CMCSA Comcast Corporation Class A Common Stock 68.36 -0.33 -0.47 4,490,070
OSH:APH The Tinley Beverage Co n/a n/a n/a n/a

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