New York Times
POSTED: 3:38 p.m. HST, Jul 16, 2014
LAST UPDATED: 3:44 p.m. HST, Jul 16, 2014
If content is still king in a media business challenged by new technologies and nimble upstarts, Rupert Murdoch hungers to wear the crown.
His biggest and boldest bid yet emerged on Wednesday: an $80 billion takeover offer for Time Warner Inc., which would be the biggest media deal in more than a decade.
While Time Warner has rebuffed his effort and no talks are underway, Murdoch is determined and unlikely to walk away anytime soon, according to people briefed on the matter. And he has a track record of pursuing companies that first said no before giving in.
His pursuit is likely to set off a wave of takeover battles elsewhere in the industry as others race to keep up with the 83-year-old mogul. By bidding for Time Warner, Murdoch's 21st Century Fox is seeking to create a colossus in the television and film industries at a time when both face pressure from the growing power of cable companies like Comcast and online video giants like Google.
Combining 21st Century Fox and Time Warner would bring under one roof some of the biggest sources of content: HBO, one of the most lucrative cable channels; Fox Broadcasting; and the movie studios Warner Bros. and 20th Century Fox. It would unite "Game of Thrones" and televising NASCAR, as well as "The Lord of the Rings" and "Dawn of the Planet of the Apes."
But it would not include CNN, which Fox plans to sell in any deal to allay concerns from antitrust regulators.
Recalling the swashbuckling empire-building of the 1980s, the Time Warner bid is the largest yet in a year full of big mergers. Both Comcast and AT&T are pursuing enormous takeovers aimed at giving them more heft in fee negotiations with the likes of 21st Century Fox, Time Warner, Viacom and CBS.
Looming large over these deals is the competitive threat from Silicon Valley. Internet giants Google, Amazon, Netflix and others are pouring resources into original content and developing the next-generation television companies.
Analysts have predicted that content producers would need to fight back by merging. Indeed, programming executives have expressed concern behind the scenes that they will lose their leverage and have a tougher time negotiating fee increases should the Comcast and AT&T deals go through. Several have knocked on the doors of the pay-television operators seeking to renegotiate programming distribution deals before the mergers close.
"In our view, the media industry in recent months has felt like a tinderbox waiting for the match to strike," David Bank, an analyst with RBC Capital Markets, said in a research note on Wednesday. "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."
While it is unclear how people will consume media in the coming years, one thing is certain, media executives say privately: Size matters.
Already, companies like Discovery Communications have weighed takeovers, while 21st Century Fox itself has considered smaller acquisitions like Scripps, the owner of HGTV and Food Network, or Univision.
"If you're not looking at consolidation yet, you have to reconsider," said Tony Wible, an analyst with Janney Montgomery Scott.
In Time Warner, 21st Century Fox has determined that its assets would yield the most benefits. Owning so many content creators and outlets would give 21st Century Fox enormous heft, from securing the best new programming and movies to blanketing it through an unrivaled number of high-profile channels, both on traditional platforms like cable and online.
A deal would also give Fox Sports important broadcasting rights that Time Warner owns for professional and college basketball and Major League Baseball, important ammunition as the division seeks to challenge the power of ESPN.
Time Warner, confirming on Wednesday that it had spurned the offer, said that the company would fare better on its own.
"Our business plans will create significantly more value for the company and our shareholders, and that's superior to any proposal that Fox is in a position to offer," argued Jeffrey Bewkes, the chief executive of Time Warner, in a video for employees that was made public.
People close to Time Warner say that now is a poor time to sell given that other prospective partners, like Comcast or AT&T, are tied up with their mergers.
They also criticized 21st Century Fox's proposal to pay Time Warner shareholders in nonvoting stock, contending that such a move would essentially disenfranchise investors. (The Murdoch family controls 21st Century Fox with 39.4 percent of the voting rights.)
And the people close to Time Warner raised the possibility of rigorous antitrust scrutiny, particularly at a time when the Obama administration is already warily examining the Comcast megamerger with Time Warner Cable, which split off from Time Warner.
Still, Time Warner shareholders on Wednesday appeared to think a deal, whether with 21st Century Fox or another buyer, is inevitable. Shares of the company jumped 17 percent Wednesday, to $83.13.
Potentially helping the cause of 21st Century Fox is the fact that both companies share many of the same shareholders, particularly large mutual funds like Wellington Capital Management and T. Rowe Price. A deal that would benefit both funds could lead them to put pressure on the Time Warner chief executive and his board to enter into talks.
Bewkes, who is 62, is in some ways the opposite of Murdoch in temperament and philosophy. Since taking the helm of Time Warner six years ago, Bewkes has shed the media conglomerate's trappings of empire, spinning off AOL, the cable business and the legacy print publications that once defined the company.
At the same time, however, that plan of focusing on Time Warner's core entertainment offerings helped leave it vulnerable for a takeover approach by 21st Century Fox.
Shares of 21st Century Fox tumbled 6 percent on Wednesday, to $33, partially on fears that Murdoch will risk overpaying to acquire what would be his crowning acquisition. Several analysts, including Wible, believe that a fairer price for Time Warner would be closer to $100 a share.
When Murdoch pursued Dow Jones in 2007, he immediately offered a rich $5 billion for the publisher of The Wall Street Journal, a price many analysts criticized as too high. But for the mogul, winning was everything, and his knockout bid succeeded. (His empire has since split off slower-growing businesses like The Wall Street Journal, The New York Post and the publisher HarperCollins into the News Corp.)
Indeed, the pursuit of Time Warner returns Murdoch to his classic daring deal-making ways, after contending with difficulties recently, from the British phone hacking scandal to a high-profile, gossip-dogged divorce.
But people close to 21st Century Fox insist that he and his lieutenants — including its president, Chase Carey; its chief financial officer, John Nallen; Murdoch's son James — will be disciplined in their bidding, though they also made clear that they are focused on winning.
Twenty-First Century Fox estimates that a merger would create $1 billion in cost savings and possibly more, primarily by cutting sales staff and back-office functions. And together, the companies would report $65 billion in revenue annually.
As additional enticement to its intended target, 21st Century Fox said that it planned to keep Time Warner's most successful managers and creative executives, as well as its various channels and studios.
The sole exception would be CNN, which Murdoch and his team would be willing to part with, given that it competes with the much more successful Fox News. Putting CNN on the auction block would likely stir up a bidding war for the news channel; both CBS and ABC, a unit of the Walt Disney Co., have long been viewed as interested suitors. Benjamin Swinburne, an analyst at Morgan Stanley, said that CNN could fetch around $10 billion in a sale.
Both 21st Century Fox and Time Warner have enlisted battalions of advisers. On 21st Century Fox's side are the investment banks Goldman Sachs, Centerview Partners and JPMorgan Chase. Time Warner has drafted Citigroup.
Several analysts and people close to 21st Century Fox said that they believe few competitors could emerge, unless a technology giant like Google or Apple decides to make a big push into content.
"It's the best strategic and financial fit you could possibly come up with in the media space," Wible said of a possible merger with 21st CenturyFox.