Time Warner Rejects Murdoch Offer

Scene from Games of Throne

Image courtesy of HBO

Time Warner Rejects Murdoch Offer
| published July 16, 2014 |

By R. Alan Clanton
Thursday Review editor

In a year marked by record-breaking mergers—both the number of business marriages and the total value—it seemed a rare case of “thanks, but no thanks.”

Time Warner’s board announced that it was rejecting a generous and friendly offer by Rupert Murdoch’s 21st Century Fox (owned by News Corp) to buy Time Warner’s entire creative component for a cool $80 billion.

The price tag was not the apparent issue. Some close to the Time Warner decision said that one of the deciding factors was the language of the buyout: Time Warner shareholders would have limited or non-existent voting rights if Fox took over, and much of the decision-making power would reside in Murdoch and his sons, James Murdoch and Lachlan Murdoch. Clearly some degree of self-determination played a role among those involved in the decision to reject Murdoch’s offer.

The buyout move was widely seen as a logical, even inevitable step for Murdoch’s sprawling media empire, which also includes more than a hundred newspapers on every continent, multiple television and radio networks and stations, and outright ownership of several premium sources of content and entertainment, including Fox News, Fox Television, 21st Century Fox Studios, and the Wall Street Journal. If the merger had been forged, Fox would have gained high-value entertainment assets from Time Warner, including HBO and Warner Brothers Pictures.

The deal was also seen as Murdoch’s direct response to other recent mergers, including AT&T’s proposed purchase of DirecTV and Comcast’s bid to buy Time Warner Cable. Murdoch’s News Corp would have wanted to position itself well in the growing convergence of the media giants.

Murdoch had also sought to deflect the one most troubling component of the deal. Among Time Warner’s most valuable assets is CNN, one of the highest-rated news channels in the world. Murdoch had early on suggested he would be willing to spin-off CNN to another buyer—or shed CNN from its portfolio by spinning it off into a separate company—to deflect regulatory and political concerns over one major media player owning the two most highly-rated news channels. Murdoch's News Corp also owns Fox News, a direct competitor of CNN.

But in the end even the proposal to shed CNN from the buyout was not enough to consummate the merger.

In the meantime, Time Warner remains in play. Time Warner has no singular force in the form of a big stockholder to lend momentum to major mergers, and many media experts say that the recent trend toward mega mergers means another player could step in to make an offer of both high value per share, and more leeway in terms of shareholder voting and participation. Rumors were already circulating that other major companies with an interest in Time Warner’s rich portfolio of entertainment might include Google, Amazon and Apple—three tech companies with a particularly compelling desire to move into content.

Time Warner stock rose an astounding 18% during a busy day of talk about the proposed merger and its rejection by board members.

Time Warner has sought to tighten its profit margins in recent years, and under the guidance of current CEO Jeff Bewkes, Time Warner sold off money-losing components like AOL and its flagship print publication Time magazine. Time Warner has instead concentrated its efforts on those areas where its profits have been solid and reliable, including HBO, the premium channel which now carries dozens of TV’s most highly-rated shows, such as Games of Thrones, Boardwalk Empire, and True Blood. HBO alone generated roughly $1.8 billion in profit for Time Warner in 2013.

Related Thursday Review articles:

Do Recent Media Cable Mergers Signal Worse Customer Satisfaction?; Thursday Review; May 20, 2014.

Citizen Rupert; Murdoch’s World: Last of the Old Media Empires; review by R. Alan Clanton;
Thursday Review; October 29, 2013.