Murdoch Time Warner Aquisition
Javier Munoz for Variety

At 83, Rupert Murdoch still carries the swagger of a corporate brawler.

At Allen & Co.’s annual Sun Valley captains of industry conference in July, the media baron approached a throng of eager reporters, and swung and stretched his arms like an aging pugilist about to enter the ring.

The 21st Century Fox chief will need to brace himself for a long fight if he continues to try to wrest Time Warner away from a board that is steeling itself for battle. Buying the company that’s behind HBO, Warner Bros., TNT and other marquee brands will require a series of deft financial maneuvers and a willingness to lay it all on the line with an offer that could hit $100 a share.

“It’s not clear how high (Fox) can go,” says David Bank, RBC Capital Markets managing director. “This is the $64,000 question: It’s not purely what Time Warner’s worth, it’s what Fox can pay.”

Raising Fox’s initial bid of $85 a share to the $90-$100 range will either require Murdoch to issue more shares of his own company’s stock or to raise debt, both of which come with risks. The latter could lower Fox’s bond rating, according to a report last week by Moody’s. Upping the stock portion of the deal would be preferable from a financial perspective, but the company’s share price is a moving target while Wall Street watches to see how the courtship ritual plays out. Fox closed trading on July 15, the day before news of the bid broke, at $34.16. It closed on July 23 at $32.25.

“The more certain you are that this is the price that will win the deal, that puts pressure on the Fox stock — and Fox stock is part of the deal,” Bank says. “It’s become more of a three-dimensional chess game than it appeared at first.”

Murdoch sold Sky Italia, which he fully owns, and his 57% stake in Sky Deutschland last week — moves that will net him $7.2 billion after taxes, money he could add to the pot. Should he buy Time Warner, he reportedly will shed CNN, potentially collecting an estimated $10 billion in the process. Fox currently has $5.5 billion of cash on its balance sheet, according to its most recent quarterly report.

Time Warner’s board roundly rejected Murdoch’s earlier offer, which would have been roughly 12.6 times the company’s earnings before interest, taxes, depreciation and amortization. The media giant went a step further, amending its bylaws last week to prevent a hostile takeover.

Roughly 40% of Murdoch’s offer was in cash, but there are issues with Time Warner shareholders accepting stock in a company that is so tightly managed by the Murdoch family. One top industry exec notes he did not expect Time Warner would accept a largely stock-based offer unless Murdoch ceded voting control —an event that is not likely to happen.

“Sometimes you have to give up an empire to gain an empire,” the exec suggests. Time Warner’s leadership has said publicly that it can deliver more for its shareholders by concentrating on growing its TV and media assets independently than by operating as a fiefdom of Fox.

“People thought, ‘Oh they’re just negotiating,’ ” says an individual close to Time Warner. “But it was not a posture.”

It seems unlikely that Fox will return with another bid before it reports earnings Aug. 6, according to individuals close to both companies, though most financial watchers suspect that Murdoch isn’t ready to exit the ring. Time Warner may have changed its corporate rules to prevent a minority of shareholders from forcing a meeting on any Fox offer, but if the bidding rises, the company may have to reconsider.

“It increases the pressure on management to consider the offer,” says Tony Wible, an analyst with Janney Capital Markets. “Shareholders might have a hard time buying the argument they should stay independent if the price keeps getting higher.”

Time Warner has yet to open its books to Fox, so it’s difficult to gauge what kind of efficiencies could be achieved by a merger, says a person close to Fox. However, combining the companies could create impressive negotiating leverage at a time when digital giants such as Google are growing in size and strength, and cable and telco titans such as Comcast and Time Warner Cable, as well as AT&T and Verizon, are looking to hook up.

At a certain point, however, the cost of an acquisition becomes prohibitive. “When you get to $100 per share or higher, it’s not accretive,” says Anthony DiClemente, a digital media analyst at Nomura.

For Murdoch, who has managed to take over such vaunted brands as the Wall Street Journal and 20th Century Fox, a Time Warner play could be a fitting coda for his decades in the arena. But some analysts warn he should be careful what he wishes for: “When the deal is finished, you’d have a largely unmanageable entity that would be unable to respond to marketplace changes,” says media analyst Hal Vogel. “He may think it would be the capstone of his career, but I think he’s wrong.”

That may not be the requiem this heavyweight envisions.

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