Time Warner snubs Fox bid of $80 billion

Investors buy up stock, see Murdoch sweetening offer

People walk past the Time Warner Center in New York. The company on Wednesday rejected an offer valued at $80 billion to merge with 21st Century Fox, but further negotiations are likely, analysts said.
People walk past the Time Warner Center in New York. The company on Wednesday rejected an offer valued at $80 billion to merge with 21st Century Fox, but further negotiations are likely, analysts said.

Rupert Murdoch's 21st Century Fox approached Time Warner last month about merging the two companies in a deal valued at $80 billion, but the offer was rejected, the companies reported Wednesday.

In a statement, 21st Century Fox said it made an offer to Time Warner -- parent of HBO, Warner Bros. and Turner Broadcasting -- but Time Warner's board "declined to pursue our proposal" and "we are currently not in any discussions."

The assets of 21st Century Fox include Fox Broadcasting, the movie studio 20th Century Fox and cable channels Fox News and FX.

Time Warner said Wednesday that its board rejected the bid after determining that its own strategic plan was better for the company and its stockholders and "is superior to any proposal that 21st Century Fox is in a position to offer."

Investors drove the price of Time Warner shares up 17 percent Wednesday to $83.13 despite the rejection of the offer.

Time Warner said that 21st Century Fox had offered 1.531 of its Class A nonvoting common shares and $32.42 in cash for every Time Warner share -- or a total of nearly $86.30.

Motivating 21st Century Fox's desire to acquire Time Warner is the rapid consolidation among the distributors that 21st Century Fox counts on to deliver its content. Comcast Corp. is acquiring Time Warner Cable, and AT&T is buying satellite broadcaster DirecTV.

As distributors merge, content providers such as 21st Century Fox and Time Warner fear that they will lose leverage in negotiating fees for carriage of their channels.

Additional negotiating clout was not the only motivation for 21st Century Fox. It has long wanted a pay-TV channel such as Time Warner's HBO. Also, Warner Bros. is the biggest movie and television studio, and combining it with 20th Century Fox's television and movie units would create a content juggernaut.

Such a merger would face regulatory scrutiny even though there are few Federal Communications Commission rules that could have derailed the deal.

As part of the proposal to buy Time Warner, people briefed on the proposal said, 21st Century Fox indicated that it would sell CNN to head off potential antitrust concerns since Fox News competes directly with CNN.

The takeover offer comes after Time Warner's spinoff of its legacy print publications, a move that some analysts have said could spur the interest of potential bidders. Over the past several years, it has spun off AOL, Time Warner Cable and most recently the magazines Time and Fortune, leaving an entertainment company that many analysts think would be an attractive asset. Murdoch's empire has also recently split, with The Wall Street Journal, The New York Post, the publisher HarperCollins and some other assets forming News Corp.

Time Warner was first approached by 21st Century Fox in early June, the people briefed on the matter said. Chase Carey, the president of 21st Century Fox and a longtime top lieutenant to Murdoch, met privately with Time Warner's chief executive, Jeff Bewkes, 62, these people said. Carey said that 21st Century Fox would raise $24 billion to help pay for the deal and stressed that its bid was not dependent on financing.

The company estimated that a combination would create $1 billion in cost savings and possibly more, primarily by cutting sales staff and back-office functions, people briefed on the proposal said. In a letter sent to Time Warner on June 24, 21st Century Fox insisted that it planned to keep Time Warner's most successful managers and creative executives as well as its various channels and studios.

Time Warner's board discussed the proposal at length, the people briefed said, and on July 8 sent a letter rejecting the offer, saying the company was better off remaining independent.

It is unclear what 21st Century Fox's next steps will be. With the disclosure of the takeover approach, pressure from Time Warner shareholders could mount on Bewkes to begin talks. About 70 percent of Time Warner shareholders, including many big mutual funds, also own shares in 21st Century Fox.

While the talks between the two companies have thus far been considered friendly, people involved in the discussions said that Murdoch, 83, is determined to buy Time Warner and is unlikely to walk away. Investors appeared to agree, sending Time Warner's shares up $12.12, or 17 percent, to $83.13 on Wednesday. 21st Century Fox fell $2.19, or 6.2 percent, to $33.

Two billionaire money managers who own shares in Time Warner Inc. said Rupert Murdoch's bid for the media company will be hard to resist, particularly if he comes back with a higher offer.

Ken Griffin, chief executive officer of hedge-fund firm Citadel LLC, said the deal makes sense for the company's shareholders, and Mario Gabelli, 72, CEO of Gamco Investors Inc., called it "hard for a board to turn down."

"It's going to get tough to say no," Griffin, 45, said Wednesday in a keynote speech at the fourth annual CNBC Institutional Investor Delivering Alpha conference in New York. "Murdoch has a history of being willing to go the extra mile to get deals done that are important to him." Griffin's $20 billion investment firm held stakes in both 21st Century Fox Inc. and Time Warner as of March 31.

Fox's willingness to raise its offer is contingent on Time Warner engaging in talks again, an unnamed source told Bloomberg News. The source said Murdoch hasn't been directly involved in discussions.

Information for this article was contributed by Joe Flint of the Los Angeles Times, Andrew Ross Sorkin and Michael J. De La Merced of The New York Times and Meghan Morris, Christopher Condon and Jeffrey McCracken of Bloomberg News.

A Section on 07/17/2014

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