Murdoch and Fox Open to a Higher Bid for Time Warner

It's Open Season for Media Mega-Mergers

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Rupert Murdoch, chairman of 21st Century Fox, walks with Lachlan Murdoch, left, and Sarah Murdoch while arriving for a morning session during the Allen & Co. Media and Technology Conference in Sun Valley, Idaho, on July 10.
Rupert Murdoch, chairman of 21st Century Fox, walks with Lachlan Murdoch, left, and Sarah Murdoch while arriving for a morning session during the Allen & Co. Media and Technology Conference in Sun Valley, Idaho, on July 10. Credit: Daniel Acker/Bloomberg
Twenty-First Century Fox Inc. is willing to go higher in its quest to buy Time Warner, according to a person with knowledge of the matter, a sign that Chairman-CEO Rupert Murdoch is undeterred after being rebuffed in an initial offer for the media company.

"21st Century Fox can confirm that we made a formal proposal to Time Warner last month to combine the two companies," Fox said today in a statement. "The Time Warner board of directors declined to pursue our proposal. We are not currently in any discussions with Time Warner."

The New York Times reported earlier that 21st Century Fox last month offered Time Warner $85 per share in cash and nonvoting stock, and a 25% premium over Time Warner shares at the time.

The company had intended to outline an offer higher than $85 to Time Warner before news of its initial overture was made public.

By making a higher offer, which would exceed $75 billion, Fox would seek to pull in Time Warner assets such as the TNT and TBS cable networks and premium channel HBO to add to its own stable of media properties, including the Fox movie studio, broadcast network and 24-hour news channel.

Fox estimates that the combined company could achieve as much as $1.5 billion in cost savings, including through the elimination of overlapping back office, human resources, sales and information technology operations, according to the person, who asked not to be identified because the information is private.

A deal would reshape the media industry by giving the TV- and-film companies greater leverage in negotiations with cable operators such as Comcast and Time Warner Cable, who are in the process of their own merger.

It would also give the combined company enormous clout in other negotiations, with everyone from TV programming producers to movie studios. "In seeking first run and off network syndicated programming, a combined company with such vast scale would probably be able to negotiate lower costs across the portfolio," said David Bank, analyst at RBC Capital Markets, in a research note on Wednesday.

Improving its sports portfolio and adding a premium cable channel in HBO may be partial but significant motivations for the deal, Mr. Bank added.

New level for media mergers
But the pursuit of Time Warner may most of all signify open season for media company mergers.

"In our view, the Media industry in recent months has felt like a tinder box waiting for the match to strike, with respect to M&A against a backdrop of consolidating distribution players and mixed fundamentals," Mr. Bank wrote. "Regardless of the outcome of this potential combination, we believe it will be tough to put the toothpaste back in the tube and sentiment-wise, the game of consolidation will now be afoot in the space."

Time Warner shares leapt 23% to $87 in early trading in New York. It had gained 21% this year through yesterday. Fox rose 1.2% to $35.60. It had climbed less than 1% this year at yesterday's close.

Nathaniel Brown, a Fox spokesman in New York, declined to comment on the Times report when reached Wednesday morning. Keith Cocozza, a spokesman for Time Warner, didn't immediately respond to request for comment.

To appease antitrust regulators, the companies would sell CNN, according to a person with knowledge of the matter, since Fox already has Fox News. Fox and its advisers would also tell regulators that a Fox-Time Warner deal should be allowed to go through given consolidation in the cable industry, including the proposed deal to combine Comcast and Time Warner Cable, the person said.

~ Bloomberg News with Ad Age staff ~

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