$80bn Fox-Time Warner deal off

October 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Following months of speculation and negotiation, Twenty-First Century Fox (Fox) announced in August that it was withdrawing its $80bn unsolicited offer for rival media giant Time Warner Inc.

Fox’s $85 per share offer for Time Warner was rejected both privately and publically as Time Warner’s board felt that its own pre-existing plans for growth would deliver considerably more value for its shareholders than any proposal Fox would be able to put forward. Had the deal been completed it would have been the second largest communications merger of all time behind the ill-fated $165bn acquisition of Time Warner by America Online in January 2000. The deal would have combined Fox’s media empire with a number of the world’s largest media and broadcasting brands, including Time Warner cable networks TBS, TNT, HBO, as well as the Warner Bros. movie studio and news network CNN.

If Fox’s chairman and chief executive Rupert Murdoch had been successful in his attempt to merge the firm with Time Warner he would have combined the two biggest film and television studios in Hollywood into one entertainment superpower and wholly changed the entertainment landscape in the US for the foreseeable future. According to a statement released by Fox, the blame for the collapse of the proposed deal lies entirely with Time Warner: “Time Warner management and its board refused to engage with us to explore an offer which was highly compelling”.

Following the announcement that Fox had withdrawn its offer, Time Warner issued a statement noting that the company’s board of directors and senior management “are committed to enhancing long-term value and we look forward to continuing to deliver substantial and sustainable returns for all stockholders. Time Warner is well positioned for success with our iconic assets, including the world’s leading premium television brand, the world’s strongest ad-supported cable network group, and the world’s largest film and television studio. We thank our stockholders for their continued support.” Time Warner’s aversion to the merger was also believed to have been based on Fox’s proposal to pay Time Warner shareholders in nonvoting stock, a move which would have left those investors essentially disenfranchised.

Despite Fox’s attempts to blame Time Warner for the collapse of the deal, sentiment appeared to be against the transaction from the outset. Fox’s share price tumbled following news of the initial offer. As a result of the aborted deal, Fox announced a share buyback scheme worth approximately $6bn, which helped the company’s stock price rise by over 7 percent.

Although there has been some suggestion that Fox could return with a sweetened offer for Time Warner, Mr Murdoch and other Fox executives have indicated that no further bids will be forthcoming. In an earnings call shortly after Fox announced that it was withdrawing its bid, Mr Murdoch stated that “we walked away. This is our resolute decision”. Fox’s chief operating officer Chase Carey also re-emphasised that Fox’s decision on Time Warner was final. “Let me be clear – we are done,” he said. According to Mr Carey, a deal for Time Warner was “a unique opportunity. We have no plans to pursue any third party content company as an alternative... we like our business (and) we like our future.”

It appears that the combination of Time Warner’s reluctance to carry out a deal, and the significant drop in the company’s stock price following the deal announcement has convinced Mr Murdoch and his associates that any potential deal for Time Warner would not create value for Fox’s shareholders. However, where Fox goes from here is up for debate. Many analysts have suggested that despite the protestations of Mr Murdoch, Fox will return with a further bid. Time Warner’s stock price fell by more than 11 percent in trading immediately following the withdrawal of the Fox offer; this will undoubtedly increase pressure on Time Warner chief executive Jeffrey Bewkes. For Mr Bewkes, the challenge lies in rebuilding his company’s stock price going forward.

Richard Summerfield