Rupert Murdoch’s 21st Century Fox Inc. withdrew its unsolicited takeover offer of $75 billion for Time Warner Inc., giving up after the attempt to reshape the media industry sent Fox shares tumbling.
Murdoch, the billionaire chairman of Fox, said he’s backing down after Time Warner’s board refused to engage in talks and Fox’s stock price declined 11 percent since the offer became public. Fox instead authorized a $6 billion repurchase of its Class A shares.
“Time Warner management and its board refused to engage with us to explore an offer which was highly compelling,” Murdoch, 83, said in a statement. “Additionally, the reaction in our share price since our proposal was made undervalues our stock and makes the transaction unattractive to Fox shareholders.”
Time Warner, led by Chief Executive Officer Jeff Bewkes, rejected Murdoch’s June offer of $85 a share in cash and stock as too low and said the media company’s growth plan will create more value than any proposal Fox “is in a position to offer.”
As its shares tumbled, Fox determined that it couldn’t bump the bid high enough to interest Time Warner’s board and management, according to people familiar with the matter who asked not to be named because the talks were private.
Fox was unable to convince investors in either company that Murdoch would remain disciplined in its bidding, said the people.
Hurdle Price
The board at Time Warner determined Murdoch wouldn’t be able to raise enough money to increase his bid to the $100 a share or more that it would take to interest investors, people familiar with the matter said last month. Convinced the media company was worth at least $100 a share based on future earnings, Time Warner’s board decided it wouldn’t begin talks at much less than that number, the people said.
Fox doesn’t plan to make another bid for Time Warner and is focusing on its standalone plan, the other people said. Wednesday’s planned earnings announcement pressured Fox to make a decision about its approach for Time Warner, they said. Time Warner also reports earnings results Wednesday.
Fox executives were surprised they couldn’t get Time Warner to engage or discuss a bid at all, said the people, and the two sides didn’t speak after Time Warner sent a letter rejecting the bid.
Reshaping Industry
Shares of Fox rose as much as 11 percent to $34.71 in late trading Tuesday. In regular trading before the announcement, they fell 0.7 percent to $31.30. Time Warner dropped as much as 14 percent to $72.85 in extended trading, from a close of $85.19, down 0.4 percent. Time Warner dropped 10 percent to the equivalent of $75.96 at 9:02 a.m. in Frankfurt, and Fox climbed 6.6 percent to the equivalent of $33.49.
“I can only speculate that Rupert didn’t want to pursue it under hostile circumstances, but I don’t know that for sure,” Robert Iger, Chairman and CEO of Walt Disney Co., said in an interview on Bloomberg TV.
A tie-up between Fox and Time Warner, the owner of HBO and Warner Bros., would have reshaped the media industry by giving the TV-and-film companies bargaining power in negotiations with cable operators such as Comcast Corp. and Time Warner Cable Inc., which are in the process of their own merger.
Standalone Plan
“Time Warner’s board and management team are committed to enhancing long-term value and we look forward to continuing to deliver substantial and sustainable returns for all stockholders,” the New York-based company said in a statement. “Time Warner is well positioned for success.”
Nathaniel Brown, a spokesman for Fox, declined to comment beyond the company’s statement.
Fox couldn’t afford to borrow enough to raise the offer, and the company’s stock decline meant needing to use more of its shares to boost the bid, according to Erik Gordon, a professor at the University of Michigan’s Stephen M. Ross School of Business.
“In the end, Fox wasn’t strong enough to offer a compelling price,” Gordon said in an e-mail.
Network Unions
The combined company would have concentrated some of the top cable networks under one roof, joining Fox News and FX with Time Warner’s TNT, TBS and HBO. It would have ended up receiving 40 percent of the licensing payments that pay-TV companies pay to both the broadcast and cable networks, according to Michael Nathanson, an analyst with MoffettNathanson Research LLC.
Matthew Harrigan, an analyst at Wunderlich Securities in Denver, said he never thought Fox could get the deal done.
“You can see from Fox’s stock reaction that they were worried about overpaying,” Harrigan said in a phone interview. “It doesn’t surprise me at all that Time Warner was reluctant to engage. I think the deal was a big distraction. There would be a lot of cultural issues to say the least.”
Cost Savings
Fox had previously calculated the combined company could achieve more than $1 billion in cost savings, including through the elimination of overlapping back office, human resources, sales and information technology operations, a person familiar with the matter had said.
“21st Century Fox’s future has never been brighter,” Murdoch said in the statement. “The strength of our leading franchises, combined with the power of our emerging growth businesses and the leadership positions of our international enterprises put us on a path for even greater success.”
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