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Time Warner's Rupert Murdoch Defense Could Mirror Sale of Time Warner Cable

Updated from 9:35 a.m. ET to include additional Time Warner and analyst commentary information throughout.

NEW YORK (TheStreet) -- Time Warner (TWX - Get Report), faced with what may be an aggressive bidder in Rupert Murdoch's Twenty-First Century Fox (FOXA - Get Report), could look at how its former cable operation Time Warner Cable (TWC) fended off unfriendly suitors. As Time Warner Cable fought an increasingly tough bidder in Charter Communications (CHTR), the company's CEO Rob Marcus reached out to Comcast (CMCSA) and was able to drum up a friendly offer.

Comcast's Brian Roberts bid roughly $45 billion for Time Warner Cable, in one of the largest all-stock cable deals in a decade. For Time Warner Cable CEO Marcus, the merger was a tremendous coup after many on Wall Street had assumed Charter Communications, backed by cable mogul John Malone, would be too hard to handle.

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Perhaps, Time Warner CEO Jeffrey Bewkes is looking at Time Warner Cable's successful defense against Charter as a template for how he might deal with Rupert Murdoch and Twenty-First Century Fox. The New York-based company confirmed that it rejected Twenty-First Century Fox's offer of $32.42 a share in cash and 1.531 Twenty-First Century Fox Class A non-voting common shares on July 8. 

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Time Warner said on Wednesday it rejected Twenty-First Century Fox's offer because the company believes its ongoing strategic plans would create more value for shareholders than any proposal the Murdoch-run company could offer. 

Murdoch will likely continue to press for a takeover of Time Warner in spite of being rebuffed initially.

"[W]e wouldn't be surprised should Twenty-First Century Fox come in with a different offer either in price or in structure - or both)," Wells Fargo analysts said on Wednesday. "Such an offer underscores the value of Time Warner's assets, which we continue to believe the market has not fully appreciated," they added in a note to clients.

However, the fact that Time Warner rejected Twenty-First Century Fox's offer outright without opening a sale process indicates that Bewkes isn't interested in selling to Murdoch.

Time Warner went on to say on Wednesday that the non-voting stock Twenty-First Century Fox offered and its governance would create "significant risk and uncertainty" for its existing shareholders. In addition, Time Warner cited "considerable strategic, operational, and regulatory risks" to a possible deal.

But like Time Warner Cable CEO Marcus, Bewkes might be interested in selling to a different company. In fact, Time Warner Cable cited many of the same objections in rebuffing Charter as Time Warner did in rejecting Murdoch.

Specifically, Time Warner, as a larger company than Twenty-First Century Fox, characterized the mostly stock-based merger transaction as too speculative. Time Warner evoked specific risks for its shareholders in Murdoch's bid, including Twenty-First Century Fox's dual class stock structure. Time Warner Cable similarly attempted to question the value Charter stock when fending off the company.

Bewkes, however, will have to deliver a credible alternative to Time Warner shareholders to counter Murdoch's $85 a share bid. Given Time Warner's recent spinoff of Time Inc. (TIME), there aren't many strategies Bewkes can quickly implement.

Mario Gabelli, head of GAMCO Investors, said on Wednesday a deal for Time Warner is all but assured. The question, however, is who emerges with the prize and at what price. Gabelli speculated in a Twitter post that Google (GOOG) or Apple (AAPL) might be interested in Time Warner.

Time Warner is a prized asset in the media industry. It owns HBO, the most profitable TV channel in history, in addition to other solid media assets like CNN, TBS and Warner Brothers motion pictures. To allay antitrust concerns, the New York Times reported that Twenty-First Century Fox would look to sell CNN.

However, if Charter's play for Time Warner Cable had obvious strategic merit and bankable synergies that would help a deal quickly pay for itself, Murdoch may be grasping in trying to buy Time Warner.

Comcast was a quick sell for Time Warner Cable CEO Marcus. Within months of their initial discussions a seeming 'white knight' deal emerged.

Bottom Line: It will be interesting to see if Bewkes and Time Warner find a competing bidder to Twenty-First Century Fox. If they cannot, it may indicate that Murdoch is overpaying for Time Warner.

Goldman Sachs is advising Twenty-First Century Fox, while Citigroup is advising Time Warner.

Twenty-First Century Fox declined to comment beyond its public statements. Time Warner didn't immediately respond to an email seeking comment.

-- Written by Antoine Gara in New York

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