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 the offer wasn't in the best interests of the
company, 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 Rupert Murdoch-controlled 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 16% to $82.39 in afternoon trading
Wednesday to $83.02, while Fox shares fell 4.9% to $33.47.
Despite perceptions that Time Warner Chief Executive Jeff Bewkes
is a likely seller, a person familiar with Time Warner's thinking
insists he isn't interested in selling to 21st Century Fox, at
least at the price Time Warner thinks Fox can afford. That doesn't
mean he is flatly opposed to selling, the person emphasized. If
someone came along and offered a significantly higher price in
cash, for instance, Time Warner might have a different view. Even
so, the company isn't planning to start an auction, the person
said.
Time Warner is likely to highlight its strategic plans in coming
days. The person noted that Mr. Bewkes had over the past few years
re-engineered Time Warner--divesting many of its units and putting
place new management atop each business unit--and believes it can
perform better as an independent company than combined with
Fox.
Time Warner noted in its statement that the board is confident
in the company's strategic plan.
Time Warner spent more than a month considering the Fox
approach. Chase Carey, president of 21st Century Fox, made the
approach at a lunch with Mr. Bewkes on June 9. The board decided on
July 3 to reject it and communicated that view to Fox last week,
before Allen & Co's Sun Valley media and technology conference,
which was attended by both Mr. Bewkes and Mr. Murdoch.
People close to Fox are playing down how aggressive the company
is likely to be on price. While they note the company is
"determined" in its pursuit of Time Warner, one also says it will
be disciplined in the price it is willing to offer.
As for Time Warner's concerns about the offer consisting heavily
of nonvoting shares, people close to Fox note that there is a
significant overlap in shareholders in the two companies,
suggesting many of Time Warner's investors aren't worried about
holding nonvoting shares in Fox.
Fox has suggested that synergies of a combination could be worth
more than $1 billion, 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 considered 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 playoffs.
Dennis K. Berman and Martin Peers contributed to this
article.
Write to Amol Sharma at amol.sharma@wsj.com
Corrections & Amplifications
An earlier version incorrectly said the companies would own the
rights to the NBA Finals.
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