So why did Rupert Murdoch pull out of the bid to take over Time Warner which many had thought would be the crowning point of his career? Bloomberg spelled it out yesterday: in the end it wasn’t such a good deal after all.
With the minutes ticking to 4:30 pm New York time on Wednesday 6 August, with Fox’s quarterly earnings call, Murdoch, his COO Chase Carey and other Fox executives knew investors would be focused on the company’s $75bn pursuit of Time Warner.
They began to conclude they wouldn’t succeed in the chase and should say so in advance, said Bloomberg, quoting several people familiar with the matter.
The earnings in fact beat forecasts, justifying that decision as the share price rose 1.9 per cent to $32.95 in extended trading. Profits rose to 42 cents a share from 31 cents a year earlier. Analysts were anticipating 39 cents. Revenue grew 17 per cent to $8.42bn, beating projections of $8 bn.
In a conference call with investors later, Rupert Murdoch called the Time Warner decision “resolute,” and said Fox is a “strategically complete company” that doesn’t need to hunt for acquisitions.
Chang in Fox’s thinking was not momentary, the Bloomberg report said, rather a gradual realization over several days that there wasn’t going to be a deal that would benefit investors of Fox.
Time Warner refused to negotiate, Murdoch said in a statement. “Additionally, the reaction in our share price since our proposal was made undervalues our stock and makes the transaction unattractive to Fox shareholders,” he said.
Since the bid was made public on July 16, a handful of Fox executives, Murdoch-83, Carey, Chief Financial Officer John Nallen, and two of Murdoch’s sons, co-COO James Murdoch and, Fox non-executive co-chairman Lachlan Murdoch, considered whether to make another offer, according to Bloomberg’s contacts.
They came close to doing so and were weighing a bid for as much as $95,said Bloomberg, but reconsidered when they saw the stock’s reaction, the people said.
During that period, shares of Fox mostly fell. As of yesterday’s close, they had declined 11% to $31.30 since July 15. Time Warner, also based in New York, surged 20 per cent to $85.19.
Today, Time Warner dropped 11 per cent to $76.09 at 10am Fox climbed 4.9 per cent to $32.82, the most since May of this year. And the price was still going up.
As a result, a higher bid that would include Fox stock became even more expensive and less attractive for its shareholders, said insiders.
Fox was unable to convince investors on either the Fox or Time Warner side that Murdoch would be disciplined in bidding, said two of the people. The expectation he would go higher, perhaps to $100 a share, pushed Fox shares down and Time Warner up.
Fox had assumed a bump from $85 a share would eventually be likely. However, doing so became more of a challenge given the market and investor reaction to the deal, said the people who talked to Bloomberg. Fox thought a new bid would have to be at least $90 a share and include more cash to get Time Warner interested.
The final decision to abandon the bid was made on 4 August on the Fox lot in Los Angeles, said one of the source who added that Murdoch’s inner circle met after he returned from a Fox Sports retreat, from which he tweeted a picture of himself with National Football League Commissioner Roger Goodell. Fox wanted to be in control of its own destiny, the source said.
There was no last attempt to negotiate with Time Warner. While Murdoch and his lieutenants viewed a merger with Time Warner as a unique opportunity, they never saw it as a necessity, the sources said.
Hence, the deal was off and Time Warner shares dropped as much as 14 per cent to $72.85. Fox will now focus on its $6bn stock buyback and its own stand-alone plan, the people said. It’s not likely to come back at Time Warner or to pursue another deal.
