21st Century Fox withdraws bid for Time Warner


21st Century FoxMarketWatch reports 21st Century Fox  shares surged almost 10% in after-hours trade Tuesday and Time Warner shares  tumbled 10.6%, after Fox said it is withdrawing its proposal to buy Time Warner. The company said it believed its offer had “significant strategic merit and compelling financial rationale. However, “Time Warner management and its Board refused to engage with us to explore an offer which was highly compelling,” Fox CEO Rupert Murdoch said in a statement. The movement in Fox shares since the news of the offer broke undervalues them, he said. “These factors, coupled with our commitment to be both disciplined in our approach to the combination and focused on delivering value for the Fox shareholders, has led us to withdraw our offer,” he said. Fox’s board has approved a $6 billion share buyback, which is expected to be completed in the next 12 months.

Noted Marci Ryvicker, Wells Fargo Securities Senior Analyst
: “This afternoon, FOXA put out a press release that we would characterize as ”short but sweet,” essentially stating that it is pulling its prior $80B offer for TWX given 1) TWX’s refusal to engage in discussions, and 2) the fact that FOXA’s stock has been under pressure since the official news first got out (FOXA is -4% since 7/15 vs. the S&P, -2.5%). At the same time, FOXA announced a new $6B share repurchase authorization, which is expected to be utilized within the next 12 months. We were previously anticipating a $5B buyback for ’15 – with the incremental $1B adding another $0.03 to our ’15 EPS est. (all else equal).

WHAT WE’RE HEARING: While we understand the rationale behind FOXA’s bid for TWX (we have to admit we weren’t really sure about this merger when the media first suggested the possibility), investor perception tended to be somewhat negative with concerns over ”empire building,” ”over-paying” for TWX, or FOXA eventually buying ”something else” (which no one seemed to be able to specifically identify). We also heard concerns about the longer term growth profile and potential valuation of the combined company, given that FOXA seemed to be a faster grower and traded at a higher multiple than standalone TWX.

OUR THOUGHTS: While we grew to like the FOXA-TWX combination, we have to admit some level of relief with FOXA’s press release, which confirms to us that the company remains disciplined, is dedicated to creating shareholder value, and is not ”empire building.” We also highlight again the company’s decision to sell its Sky properties (DBS) to BSkyB for $9.3B in gross proceeds. We remind you that both TWX and FOXA report tomorrow -with TWX before the open and FOXA after the close. We expect to hear from both management teams regarding all of the recent developments. Fun times!”

Frank Montero

Noted  Francisco Montero, Managing Partner, Fletcher, Heald & Hildreth, P.L.C.: “It appears that the decision to back away from the deal may have been driven by a combination of Time Warner’s refusal to engage in discussions below $100 per share coupled with the downward impact of the negotiations on Fox’s stock value, which would force Fox to offer up more shares as the price of Fox shares declined. This, more than any concerns over obtaining regulatory approval, may have motivated the decision. Still, it is interesting to speculate how the FCC would’ve approached such a transaction given the other large mergers it is currently reviewing, to say nothing of how the DOJ or the FTC would’ve reviewed the acquisition of Time Warner. It does bring back memories of how AOL’s bid for Time Warner shocked the industry fifteen years ago. One thing is certain, a combined Fox and Time Warner would’ve shaken up the industry and created a combined TV/film behemoth with awesome bargaining power in dealing with cable giants like Comcast, which is itself in the midst of its own acquisition of Time Warner Cable.  It would have been interesting to see how the FCC and the parties would have dealt with two such mergers undergoing review simultaneously.”