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 The absence of potential counter-bidders leaves Time Warner's
investors with a dilemma. They can either engage with Murdoch's
Twenty-First Century Fox Inc to negotiate a higher price, or play
for time and wait until there are more potential buyers available.
Time Warner, owner of many highly-prized assets from HBO to Warner
Bros, has rejected Fox's initial cash-and-stock proposal of $85 per
share. An eventual deal would transform the U.S. media landscape and
cement Murdoch's status as the most powerful magnate in U.S. media
and entertainment.
When Time Warner's board rebuffed the approach it indicated it
believes now is the wrong time to sell because the environment isn't
conducive to getting the best price, people familiar with Time
Warner's thinking said on Wednesday. That is mainly because a range
of major media, telecom and technology companies are for various
reasons not in a position to make a rival offer.
Verizon Communications Inc, which last year paid $130 billion to buy
Vodafone out of its U.S. wireless business Verizon Wireless, is
hampered by the $140 billion debt load that it took on as a result.
Comcast Corp, which completed the acquisition of NBC Universal last
year, has its hands tied while waiting for the government to approve
its proposed $45 billion takeover of Time Warner Cable. Bidding for
Time Warner while that is going on could scuttle the chances of
getting the cable deal approved.
Elsewhere, AT&T Inc, another large telecom company that hardly
produces any programming, is trying to close its $48.5 billion
takeover of satellite TV company DirecTV, which is also awaiting
regulatory approval.
As the media industry landscape evolves, technology companies such
as Google, Apple or Amazon could also be tempted into bidding for
Time Warner as opposed to trying to produce video content on their
own, people familiar with Time Warner's thinking said.
Time Warner shareholder Mario Gabelli told Reuters Insider TV on
Wednesday that he thought both Google and Apple were possible
bidders.
But for now, Google's investment in content is focused on its
YouTube unit while Amazon has spent money on original TV shows for
its online video service. Apple's media bets have so far been on
music, illustrated by its purchase of Beats Music in May for $3
billion.
"If I were Time Warner, I would wait. A year or two from now, they
will have competition for the assets actually," said an industry
banker who is not involved either with Time Warner or Fox.
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"The only downside of waiting is if you believe that multiples are
going to contract in the next year or two. Nobody assumes that the
markets are going down," the banker said.
For Fox, stars seem to be aligned for a deal. Financing remains
cheap, making it easy for Fox to borrow the cash it will need for
the deal. Its stock, which Fox wants to use to finance 60 percent of
its bid, is trading at a lofty multiple to earnings.
"In our experience, if Mr. Rupert Murdoch wants an asset, he
will wait and pay to get it," ISI analyst Vijay Jayant said.
UNINTENDED CONSEQUENCE
Still, Time Warner shareholders have told Reuters that Murdoch will
have to raise his bid and increase the cash component to stand a
chance of succeeding.
Also companies don't always get to choose the place and time of a
battle. Fox's overture could force another company to think hard
about making a competing bid, and Murdoch could get trumped.
Investors in cable and media have seen this movie before. Earlier
this year, Charter Communications went public in its pursuit of Time
Warner Cable and ended up losing out to Comcast, which swooped in as
a white knight with a surprise offer of its own in February.
People familiar with Comcast told Reuters at that time that while it
had historically been intrigued by the idea of buying Time Warner
Cable, such a deal was not high on its priority list until Charter
started pursuing the company.
"By going public you could run into the unintended consequence that
other people start to think it's important for them and they go
after it," said a second industry banker.
(Reporting by Liana B. Baker, Editing by Soyoung Kim and Martin
Howell)
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