How to read Fox’s retreat from Time Warner: Rupert Murdoch never gives up this easily

August 5, 2014
Obsession
Glass
August 5, 2014

Everyone, ourselves included, seems to have been caught off-guard by 21st Century Fox’s withdrawal of its $80 billion bid for Time Warner. And maybe that was the intention?

The knee-jerk reaction in the markets was to take Fox at its word. Fox said it was no longer looking to acquire the owner of HBO, CNN, and TBS, and would instead start buying back $6 billion of its own stock.

“We’re done,” said a source close to Fox, referring to the Time Warner bid. Fox shares soared by about 7% in after-hours trading; Time Warner stock has sunk by even more.

But with the initial shock beginning to fade, some observers think this could be just another elaborate negotiating ploy by Fox CEO Rupert Murdoch. After all, the initial reports of the approach said he was “determined” to acquire Time Warner and would not walk away easily. His own papers reflected similar sentiments.

But walking away is not something the media and financial world have come to expect from Rupert Murdoch, who has pulled off a string of major acquisitions during his career. He usually gets what he wants.

Now shareholders in Time Warner may be upset with CEO Jeff Bewkes for rejecting Fox’s offer. And walking away, while buying back stock, should both boost Fox’s share price, making it a more valuable currency to use in a deal, should it choose to return at some point in the future. That might not be for a while now, but it could still happen.

As Macquarie analyst Tim Nollen wrote in a note to clients: “We also wouldn’t be surprised if Fox hovers around Time Warner for the next few years, awaiting another opportunity.”

Both companies report earnings tomorrow (Aug. 6). Stay tuned.

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