21st Century Fox Made $80B Bid for Time Warner

Updated: 04:35 p.m.

21st Century Fox last month made an $80 billion offer to purchase Time Warner, but the bid was nixed.

Shares of Time Warner stock were up about 20% in pre-market trading on the news, which was first reported by The New York Times. After closing at 71.01 on July 15, Time Warner shares opened $82.25 on Wednesday, reaching a high of $84.40, a low of $81.42, before closing at $83.13, up 17.1%.

Time Warner’s board of directors decided against the proposal, which could unite two of the globe’s largest media companies and place broadcast network Fox, Fox News Channel and FX in the same portfolio as HBO, TNT and TBS, as well as the movie studios 20th Century Fox and Warner Bros.

According to people briefed on the proposal, The Times reported that Fox said it would sell CNN to head off potential antitrust concerns since Fox News competes with the cable news outlet.

Fox's formal $80 billion offer amounted to $85 per share, comprised of both cash and stock components. The combined company would have total revenue of $65 billion, with Fox anticipating $1 billion in synergies.

Time Warner detailed the proposal as a combo of 1.531 of Twenty-First Century Fox Class A non-voting common shares and $32.42 in cash per share.

With Citigroup Global Markets Inc. acting as financial advisor and Cravath, Swaine & Moore LLP serving in a legal capacity, Time Warner said its board determined it was not in the best interests of the company or its stockholders to accept the proposal or to pursue any discussions with Twenty-First Century Fox.

According to Time Warner's statement, the board's decision was rooted in its management's team record of producing superior returns and unlocking value through transactions involving the separation of AOL, Time Warner Cable and Time Inc. that has delivered a total shareholder return of more than 150% since 2008, trebling the return of the S&P 500 over the same period. The statement also cited Time Warner's strategic plan continuing "to drive significant and sustainable value for Time Warner stockholders," and that the value of the company's portfolio of film studio and television production businesse is only going to grow

Time Warner also said there are "considerable strategic, operational, and regulatory risks to executing a combination with 21st Century Fox," as well as "significant risk and uncertainty as to the valuation of its non-voting stock." It also questioned the company's ability to govern and manage a combination of the size and scale of the proposed union.

Jeff Bewkes, Time Warner CEO, described the company's reasoning against the Fox overture in a video disseminated on Wednesday morning to company employees.

Should a merger agreement ultimately be consummated, it would continue the consolidation trend on the distribution side of the industry that currently has Comcast’s bid for Time Warner Cable and AT&T’s play for DirecTV undergoing government reviews.

Fox's interest in combining the two major content producers could add some fuel to a hearing on consolidation and the future of the video marketplace being held in the Senate Communications Subcommittee Wednesday.

Fox issued the following statement this morning: “21st Century Fox can confirm that we made a formal proposal to Time Warner last month to combine the two companies. The Time Warner Board of Directors declined to pursue our proposal. We are not currently in any discussions with Time Warner."

The Times story, though, suggests that 21st Century chairman Rupert Murdoch is determined to add Time Warner to its stable, which has been built in large part over the years through acquisitions.

Wells Fargo Securities senior analyst Marci Ryvicker in a note indicated that Fox's gambit underlines its "significant appetite for more content -- likely as a resut of consolidation on the pay-side," pointing to the pending deals listed above.

She said Fox's move underlines "the value of TWX's assets" which she believes "the market has not fully appreciated," and expects this won't be the last salvo.

"Based on recent history [with Time Warner Cable] we would say no," she wrote.  "What we know right now is that there are no current talks between Fox and Time Warner. But we wouldn't be surprised should Fox come in with a different offer, either in price or in structure - or both. Or perhaps other companies start to view Time Warner as a potential take-over target, whether these companies are 'incumbents' or ''new entrants' into the television ecosystem."