By Amol Sharma
Time Warner Inc. rejected an offer made by 21st Century Fox that
would have united two behemoths in the media world.
Time Warner said in a statement that the offer wasn't in the
best interests of the company and its shareholders, and that its
strategic plan will create significantly more value "and is
superior to any proposal that Twenty-First Century Fox is in a
position to offer."
Separately, 21st Century Fox confirmed that it made an offer
that Time Warner rejected. The company added that the two sides
aren't in any discussions.
Time Warner said the offer was to swap each of its shares for
1.531 nonvoting Fox shares and $32.42 in cash. According to people
familiar with the matter, the offer valued Time Warner at $80
billion, or $85 per share.
Any deal, if consummated, would reshape the media industry. Time
Warner's lucrative cable channels, including TNT, TBS and HBO,
would be part of a portfolio with 21st Century Fox's FX, Fox News
and the Fox broadcast network. The companies also would have the
dominant film and TV studio business if Warner Bros. and Twentieth
Century Fox were under one roof.
Shares of Time Warner jumped 15% in premarket trading to $83.10.
Fox shares added 10 cents to $35.26.
The offer was first made orally in June and then with a formal
letter in July. Time Warner rejected the offer curtly, after Chief
Executive Jeff Bewkes took the proposal to the board. Since then,
Time Warner has been unwilling to engage with Fox, according to
people familiar with the situation.
Fox has suggested that synergies of a combination could be worth
more than a billion dollars, but it wanted to have discussions to
fully ascertain value of those savings and Time Warner hasn't been
willing to talk, one of the people said.
Fox proposed selling off CNN, the one Time Warner asset it felt
regulators would balk at being combined with Fox, which already
owns Fox News channel, a CNN competitor. Otherwise, Fox was
proposing buying all of Time Warner, although the Time Warner and
Fox movie studios would remain separate in the deal.
The offer--which was approximately 40% cash and the rest in
stock--values Time Warner at 12.6 times the company's past 12
months of earnings before interest, taxes, depreciation and
amortization, a person said. It would be financed by Goldman Sachs
and additional banks, the person said.
The New York Times earlier reported that 21st Century Fox made
an offer to Time Warner that was rejected.
Wall Street has been watching for mergers to unfold in the media
industry in response to consolidation among major pay-TV
distributors, especially Comcast Corp.'s pending takeover of Time
Warner Cable.
Many of the most logical deals, according to analysts and
investment bankers, would involve smaller players like Food
Network-owner Scripps Networks Interactive Inc. and AMC Networks
who need to bulk up to gain leverage in negotiations with
distributors.
But they haven't ruled out that moguls like 21st Century Fox's
Rupert Murdoch would look to do a blockbuster deal. Time Warner,
after years of spinning off or selling various parts of the
company--from AOL to Time Warner Cable to Time Inc.--is viewed as
an attractive potential target that is now a pure TV and movie
company. Some analysts and investment bankers have in recent weeks
said 21st Century Fox could make a bid for the company.
A merger of the two media giants could face some significant
antitrust scrutiny, analysts say. They would have enormous control,
for example, over the TV shows and movies that get produced. In
discussing the scenario of a 21st Century Fox-Time Warner deal,
some investment bankers have said the companies would likely
consider selling off CNN so that it wouldn't be under the same roof
as Fox News.
21st Century Fox and Wall Street Journal owner News Corp were
part of the same company until last year.
21st Century Fox is seen able to make a large acquisition
because of its balance sheet. 21st Century Fox currently has $5.5
billion in cash at its disposal and the possibility for $9 billion
to $10 billion more, after taxes, should it complete a plan it is
pursuing to sell its satellite-TV holdings in Europe.
"However improbable it may seem, one cannot overlook this
megadeal given its immense financial benefits that dovetail with a
number of strategic benefits," Janney Capital Markets analyst Tony
Wible said last month. The companies each own powerful cable
channels and production studios, and control valuable rights to
sporting events including the World Series, NCAA Final Four and the
NBA Finals.
Dennis K. Berman and Martin Peers contributed to this
article.
Write to Amol Sharma at amol.sharma@wsj.com
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