Twenty-First Century Fox (NASDAQ: FOXA) Drops $80 Billion For Time Warner (NASDAQ: TWX)

Twenty-First Century Fox (NASDAQ: FOXA)’s has announced that its CEO, Rupert Murdoch, has withdrawn its bid to purchase Time Warner (NASDAQ: TWX). If this move had gone through, it would have produced a media giant that would take over the industry. This deal would have been widely regarded as the magna carta deal of Murdoch’s career as a media mogul.

A statement released by Twenty First Century Fox said that they have decided to drop the $80 billion bid after Time Warner refused to engage with them. Instead, Twenty First Century Fox will buy back $6 billion of its own shares.

This announcement was made right before the stock market closed on the day before it would release its quarterly earnings report.

Murdoch said in a statement that the company has seen the merger with Time Warner has a unique opportunity to bring together two companies with celebrated content brands. He claimed that Twenty First Century Fox’s proposal contained meaningful strategic value and compelling financial justification. He also stated that the company’s approach towards Time Warner has always been friendly.

However, the executive and management board of Time Warner has consistently refused to engage with Murdoch’s company and discuss an offer that was, according to Murdoch, extremely appealing. Additionally, Murdoch blames the way Twenty First Century Fox’s stock price reacted since the offer was announced, saying that the company’s share price was undervalued and made the deal unappealing to many of Fox’s shareholders.

These factors, along with Murdoch’s commitment to be restrained in their approach to the merger and its priority of providing value for the company’s shareholders, has lead to Murdoch dropping the bid.

Fox first announced its bid for Time Warner in July. This offer was quickly dismissed by Jeff Bewkes, the chief executive officer of Time Warner, who claimed that the offer undervalued the company. Time Warner has a large collection of assets, including HBO, CNN, and Time Warner movie studios. According to Bewkes, the biggest turnoff for Fox was the company’s dual class setup, which gives Murdoch the majority control even though he is a minority shareholder. Bewkes sees that as a regulatory risk, and doubts Fox’s ability to manage a merged company of this size.

Analysts estimated that Fox would have to pay up to $100 billion to secure this deal. Other players in the Silicon Valley giants like Google Inc (NASDAQ: GOOG) and Apple Inc (NASDAQ: AAPL) could potentially get involved and spark a bidding war.

This bid was Murdoch’s largest venture ever, and it follows the hacking scandal of The News of the World, Murdoch’s newspaper in the United Kingdom, which led to the shut down of his most profitable newspaper, the arrest and conviction of his senior staff, and a tarnished reputation.

A media analyst at BTIG stated that the withdrawal of the deal was surprising, and it made sense to go through with the deal. Some said that a combined company would have an advantage when negotiating with other larger cable firms.

Comcast (NASDAQ: CMST) is in the process of finalizing an offer to take over Time Warner Cable. Comcast is the number one largest cable firm in the United States, and Time Warner Cable is the nation’s second largest and a former branch of Time Warner.

This deal also had personal merit for Rupert Murdoch, who had planned to put his son, James Murdoch in a key position within the merged company. This move was to salvage James’s career, which was all but completely ruined as a result of the hacking incident.

Claire Enders, the founder of media research company Enders Analysis, stated that the deal would propel James’s career into new extraordinary heights because of the scale of the deal as well as the reputation that would likely follow him for the rest of his career.

While Fox has withdrawn its offer, analysts say that this is not the end of Fox’s pursuit of Time Warner. According to David Folkenflik of NPR, this move is just another way to pressure Time Warner.