Time Warner Inc. rejects $80B takeover bid by Murdoch, Fox

In a probable bellwether of pending merger activity among entertainment conglomerates, Time Warner Inc. has rejected an $80 billion cash and stock acquisition offer from 21st Century Fox.

The proposed deal, first reported by The New York Times and confirmed by both companies, would have resulted in a massive media company, combining Fox assets, including Fox Broadcasting, FX, Fox News and Fox Sports 1, with Time Warner Inc.'s HBO, TNT, CNN and Warner Bros. TV studio, not to mention leading motion picture production and distribution operations.

Fox estimated there would be $1 billion in immediate synergies just from eliminating redundancies like backend operations. The deal would align Time Warner Inc.'s powerful TV studio operations with Fox's broadcast network, as well as an enhanced empire of cable programming outlets. Also notable: Time Warner Inc.'s sports rights, which include the NBA and NCAA men's basketball tournament, could be leveraged on platforms like Fox Sports 1.

According to the Times, talks between Chase Carey, longtime top lieutenant to Fox chief and deal architect Rupert Murdoch, and Time Warner Inc. CEO Jeff Bewkes took place in June. Time Warner's board discussed the offer, then tersely rejected it in early July, noting that it was "not in the best" interest of the company.

Reportedly key to the rejection: the stock would be "non voting" shares. Of course, the octogenarian Murdoch has a history of being rebuffed by acquisition targets, only to come back again and again until he gets his prize.

"We believe Fox will not go away and ultimately they will raise their bid to try to get the deal done," predicts MoffettNathanson analyst Michael Nathanson. "On the outside, as Time Warner is perhaps the last pure play, non-family owned media company of scale outside of Disney, this could force non-traditional suitors (press reports have indicated Verizon (NYSE: VZ) and Google (NASDAQ: GOOG) as two possibilities) to take a look."

Nathanson believes that word of the proposed deal will rekindle other media merger discussions, such as a potential union between CBS Corp. and Viacom, as well as possible acquisition deals involving smaller companies like AMC Networks and Scripps Networks.

Should a Fox/Time Warner Inc. merger ultimately be consumated, on the pay TV side, any leverage wrought by having the four top MVPDs attempting to consolidate into two might be dissipated, the analyst adds.

"First, distribution companies that thought consolidation on their side would help increase their leverage will be sadly mistaken," Nathanson writes. "Second, Netflix (NASDAQ: NFLX)--the scale of Fox and Time Warner Inc. content assets means that the negotiation power for SVOD and TV Everywhere rights will shift in favor of the existing TV ecosystem."

For more:
- read this New York Times story
- read this Wall Street Journal story
- read this MoffettNathanson report (sub. req.)

Related links:
Cable networks AMC, Discovery, others face hard times, analyst says
Consumers opposed to Comcast-Time Warner Cable merger, survey says 
AT&T: DirecTV buy will save it 20% on programming costs

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