After weeks of mounting expectations about a corporate takeover duel between 21st Century Fox and Time Warner, Rupert Murdoch surprised the media biz by withdrawing his $80 billion acquisition offer.
The statement from Fox came one day before both congloms report second quarter earnings. Although Time Warner’s board rejected Fox’s offer in June, biz watchers widely expected Fox to field another bid. Until the statement was issued, Time Warner execs were gearing up to deal with another bid that was expected to come on the heels of the earnings reports.
But in the statement, Murdoch bowed to the realities of the investors’ concerns about the proposed combination, which have weighed on Fox’s stock price during the past few weeks. Sources close to the company reiterated that the drop in Fox’s share price made it much harder to get a stock-and-cash deal done without hurting the interests of shareholders, at least in the short term.
Murdoch has a well-earned reputation for being a swashbuckling CEO whose firm control of the conglom allowed him to chart his own course. But the acknowledgment of shareholder interests seems to be a signal that the criticisms in recent years of the company’s corporate governance and handling of other fiduciary matters has had an impact.
“We viewed a combination with Time Warner as a unique opportunity to bring together two great companies, each with celebrated content and brands,” Fox chairman-CEO Rupert 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. Additionally, the reaction in our share price since our proposal was made undervalues our stock and makes the transaction unattractive to Fox shareholders. These factors, coupled with our commitment to be both disciplined in our approach to the combination and focused on delivering value for the Fox shareholders, has led us to withdraw our offer.”
Instead of pursuing Time Warner, Murdoch said the board had approved adding another $6 billion to the company’s stock buyback program, to be spread over the next 12 months.
“This significant return of capital underscores the company’s ongoing commitment to disciplined capital allocation and returning value to shareholders in a meaningful way,” Murdoch said.
Fox’s shares have dropped more than 10% since July 16, when the conglom disclosed the offer made to Time Warner on June 9. In after-hours trading Tuesday, Fox shares were up $2.27, or more than 7%, following the statement of withdrawal from Murdoch.
Time Warner share have climbed nearly 3% since July 16, but shares were down more than $9, or 11%, in after-hours trading Tuesday.
Discussion of the Fox-Time Warner bid and other prospective takeover offers is likely to dominate the questioning during both congloms’ earnings calls on Wednesday. Fox’s overture to Time Warner highlighted its vulnerability to takeover attempts now that CEO Jeff Bewkes has slimmed the company down to three core content-focused components: HBO, Warner Bros. and Turner Broadcasting.
Sources close to the situation emphasized that Fox saw the Time Warner deal as a “unique opportunity” to add blue-chip assets to the Fox fold — not a sign that Murdoch feels his media and entertainment company needs to get significantly bigger to survive. 21st Century Fox was created in 2013 when the erstwhile News Corp. split off its newspaper and publishing holdings into a separate entity.
Fox insiders also stressed that the pending transaction involving its European satellite TV companies, Sky Italia and Sky Deutschland, transferring to BSkyB will continue and was never envisioned solely as a means of raising cash for the Time Warner bid. Fox is poised to gain about $7.2 billion on the transfer of those sat-TV companies to BSkyB, in which Fox holds a 39% stake.
Fox was also surprised at the degree to which Bewkes and the rest of the board pushed back on the unsolicited offer. A source close to the situation characterized the decision to issue the statement on dropping the offer as “a firm walkaway” and not a negotiating tactic.