It’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.
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