Time Warner Stock Drops Amid Withdrawn Bid

Joel Cuttiford
|Aug 6|magazine5 min read

Upon the announcement that Fox had withdrawn its $76-billion offer to buy Time Warner Inc., Time Warner stock dropped 11 percent overnight.

Fox shares immediately jumped ten percent in after hours trading while Time Warner fell in response to the news that the merger was off.  Traders had forecasted that Rupert Murdoch would have to raise his bid for Time Warner.

This morning, Time Warner was trading at $75.51 and Fox was trading at $32.95, up five percent.

Time Warner’s board firmly rejected the bid, which would have seen the company that owns Fox News take over the company that owns CNN.  The board said that the offer was not high enough and that they had doubts about Murdoch’s plans for the future of Time Warner.

Murdoch said that Time Warner’s aversion to the deal and the hit Fox shares took upon its proposal helped him decide to abandon the bid.

“We viewed a combination with Time Warner as a unique opportunity to bring together two great companies, each with celebrated content and brands,” Murdoch said in a statement.  “Our proposal had significant strategic merit and compelling financial rationale and our approach had always been friendly.  However, Time Warner management and its board refused to engage with us to explore an offer which was highly compelling.”

Murdoch said that the bid caused Fox stock to become “undervalued,” and shareholders would be better served by abandoning the offer, indicating that he had been pressured by shareholders during the deal.

The Fox board authorized a $6 billion share repurchase program.  The repurchase of an additional $6 billion of Class A Common Stock is expected to be completed in the next 12 months.

The merging of Time Warner and Fox would have created a movie and TV powerhouse that controlled the 20th Century Fox movie studio, Fox broadcast network, Fox News and FX along with Warner Bros. movie studio and TV channels such as TNT, TBS and HBO.  However, it would be subject to sizable anti-trust hurdles.  Merging Fox News and CNN would also have been difficult.

Murdoch has walked away from similar deals in the past.  In 2008, he gave up on purchasing DirecTV through another company, News Corp, after Liberty Media Corp. bested him.  He also withdrew a bid to increase News Corp.'s stake in British Sky Broadcasting Group PLC in 2011 amid scandal over phone hacking at News Corp.'s British newspapers.