NEW YORK (
(TWX - Get Report) may have initially rejected
21st Century Fox's
(FOXA - Get Report) takeover bid but Wall Street hardly views a deal for the owner of HBO and Warner Bros. Studios to be over.
Time Warner CEO Jeff Bewkes took to the airwaves of Google's (GOOG) YouTube to declare that he and his board of directors weren't interested in Fox Chairman Rupert Murdoch's $80 stock-and-cash offer. The board judged the offer too low, while Bewkes insisted that his Time Warner in its streamlined post-AOL/TimeWarnerCable/TimeInc condition is just fine, thank you. Now, please go away.
The initial offer, a cash-and-stock deal which amounted to around $85 a share, represented an approximate 25% premium to Time Warner's average price at the time of the offer in early July. Shares rallied on the news, and Thursday was moving another 2.85 to $85.45.
Analysts are generally viewing the deal, though rebuffed, as a sign that a deal for Time Warner eventually gets done as media companies' make aggressive moves to get bigger, acquire more content and more subscribers, regulators be damned.
Here's what Wall Street's saying about a possible Time Warner takeout: Bank of America Bank of America analysts Jessica Reif Cohen, Bryan Goldberg and Peter Henderson argued Fox could stand to raise its bid without taking too much of a hit. "We estimate FOXA could pay up to $95-100 per TWX share without incurring material dilution on an EPS basis holding synergies constant and assuming a 62:38 stock vs. cash mix. Should synergies prove to be 100% larger ($2bn), we estimate FOXA could theoretically tolerate a $110 per share offer," they wrote. "To the extent rights contracts permit-the potential consolidation of Turner's NBA, NCAA, MLB and Golf sports rights with FOXA's NFL, MLB, NASCAR, PAC 12, Big East, UFC, Champions League, FIFA and regional sports nets could yield a more scaled/competitive sports offering vs. ESPN, driving affil. fee and adv. upside." Credit Suisse Research analysts Omar Sheikh, Joseph Barnet-Lamb, Nick Bertolotti, Sophie Bell speculated on Fox's strategy to concentrate on content-creation assets. "If a deal to buy Time Warner were to proceed, Fox would reduce its exposure to distribution relative to content. This in itself suggests to us that Fox's long-term priorities may be shifting away from ownership of distribution assets," analysts wrote. Also, a consolidation of two of the largest TV/movie companies in the U.S. would have a knock-on effect internationally, reducing global media buyers' bargaining power. "A Fox/Time Warner transaction concentrates ownership of key US broadcast and cable networks, which includes some of the most attractive content sold into international markets. This will reduce the bargaining power of international customers of this content, unless these customers themselves get bigger. Moreover, it is possible US downstream (distribution) consolidation may not be over. If so, this would drive a search for scale upstream, for any studio or network selling content into the US market."
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