If Regulators Care, Here Are the Hurdles to a Fox-Time Warner Deal

NEW YORK (TheStreet) -- As Time Warner (TWX) and 21st Century Fox (FOXA) play a high-stakes game of cat-and-mouse, federal regulators at the Department of Justice and the Federal Communications Commission are no doubt watching these events, and maybe even thinking of ways this proposed hyper-consolidation of media properties might run counter to federal law.

And then again, maybe not. Afterall, regulators hardly made it difficult for Comcast (CMCSA), the country's largest pay-TV operator, to acquire a broadcast station and film studio when it acquired complete ownership of NBC/Universal in 2011 .

Complicating matters is the fact that regulators already have a lot on their plate. There's the $45 billion bid by Comcast (that same company again) for Time Warner Cable (TWC) as well as AT&T's (T) proposed $48 billion acquisition of DirecTV (DTV).

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Not one who is accustomed to losing, Fox Chairman Rupert is reportedly willing to raise his offer for Time Warner to more than $85 a share -- so clearly his pursuit of Time Warner isn't over. A potential second-round bid could reach as high as $90 billion, Gabelli & Company media analyst Brett Harriss told The Street, adding it's likely Fox will come back in a month or two "with a sweeter offer."

But what about those regulators, and what might they ponder if they're given this deal?

First the easy part. Both companies have stakes in the cable-news world as owners of longtime rivals CNN and Fox News. Federal regulators are likely to demand that one of them be sold, most likely CNN.

Heading off that risk, Fox has already stated that if a deal came to pass it would seek to divest CNN which, while a headliner brand, has been losing market share while Fox News remains the number one cable news channel. Harriss estimates with $450 million in earnings before interest, tax, depreciation and amortization, and at an eleven times multiple, CNN could fetch a sale price of around $5 billion.

Conveniently, should CNN be put on the auction block, the news channel already has a willing buyer in CBS (CBS). CEO Leslie Moonves this week said that should regulators force Fox to sell CNN to win government approval for a Time Warner deal, his not-so-small media company would certainly consider buying it. 

"It's something I'm sure we will look at if that becomes available," Moonves said in comments at a gathering of the Television Critics Association, as reported by Reuters.

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