A wily Fox sets its sights on Time Warner

Although 21st Century Fox's bid for Time Warner was rejected, it could still be vulnerable, given Rupert Murdoch's history of persisting and paying whatever it takes to succeed.

At this advanced stage in his life and career, one might have expected that Rupert Murdoch would become more conservative. Instead, in keeping with the ambitious entrepreneurialism that has been his hallmark, he’s again embarking on yet another tilt at a company and industry-transforming deal.

While 21st Century Fox’s $US80 billion offer to acquire Time Warner with a scrip and cash offer has been rejected, Murdoch’s history says that he won’t just walk away from the prospect of creating the world’s dominant film and television content business. In the past, if at first he hasn’t succeeded, he just keeps trying until he does.

The approach to Time Warner is a reminder (if one were needed) that even at 83, Murdoch remains a risk-taker and empire builder with unlimited ambitions.

There are good reasons as to why he is now stalking Time Warner.

Apart from the reported $US1bn of synergies Fox believes it could extract from combining Time Warner with its own film, cable and television operations, there is consolidation occurring within the distribution side of the US industry that has potentially threatening implications for content producers like Fox and Time Warner.

Comcast is seeking to acquire Time Warner Cable (spun out of Time Warner in 2009) in a $US45bn deal while AT&T is trying to acquire Direct TV for $US49bn, while cable and broadcast television are under pressure from internet streaming companies like the giant Netflix. Merging Fox and Time Warner would give Fox greater negotiating leverage with both distributors and the new online disruptors.

Time Warner owns a portfolio of cable TV channels, including the prestigious HBO, its movie studio and a raft of valuable sporting rights that would be very complementary to Fox’s own film, cable and broadcast television assets. Fox has reportedly said it would sell Time Warner’s CNN, a Fox News competitor, to overcome the most obvious anti-trust hurdle to the deal.

Time Warner’s concern about the proposed bid is said to have centred on both the price and composition of the offer, with the $US85bn price-tag comprising about $US32.4bn of cash and the scrip on offer Fox’s non-voting shares.

With an open register and apparently a significant overlap between the two media groups’ share registers -- more than half the Time Warner register is common to Fox’s -- Time Warner is vulnerable, given Murdoch’s history of persisting and of paying whatever it takes to succeed.

At the very least it is in play, given that the approach from Fox highlights the scale of the financial and strategic benefits of consolidating content producers within an evolving US and global film and television environment.

After last year’s demerger of 21st Century Fox from News Corporation, which separated the film and television assets from the newspaper and publishing businesses, Fox was left with a strong balance sheet that includes about $US5.5bn of cash.

In May, the 39 per cent-owned UK cable business, BSkyB, confirmed that it was in discussions with Fox about acquiring that group’s German and Italian pay television businesses in a deal that would create a European pay TV business with real scale and a growth profile. It could also release more than $US10bn of cash for Fox, which has said it won’t use the transaction to increase its stake in BSkyB.

Given that it has a lot of latent financial firepower in an environment where the cost of debt is (thanks to the monetary policies being pursued in the US and elsewhere) historically and aberrationally cheap, there couldn’t be a better moment for Fox to embark on yet another transforming deal -- one that would essentially double Fox’s size.

News Corp Australia is the publisher of Business Spectator. 

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