In the wake of the abandoned pairing of 21st Century Fox and Time Warner Inc., both Fox chairman and CEO Rupert Murdoch and Time Warner chairman and CEO Jeff Bewkes have entered what some analysts are calling “show me” mode.
Less than two months after Fox made its first $80 billion bid for Time Warner — which was rejected by the parent of Home Box Office, Turner Broadcasting System and Warner Bros. studios as too low — 21st Century Fox called off any current or future attempts to acquire the media company. Fox chief operating officer Chase Carey put it in no uncertain terms.
“Let me be clear, we are done,” Carey said, adding that Fox would not pursue other targets as an alternative to Time Warner. Instead, it will focus on the job at hand — growing the business organically — he said.
In a research note entitled “A Show Me Story,” Morgan Stanley media analyst Ben Swinburne wrote that with Fox’s withdrawal, Time Warner Inc. shareholders can now focus on fundamentals. Swinburne said he sees the biggest upside in HBO — he assumes 5% to 6% annual revenue growth for the next five years as affiliate deals expire — and expects increased revenue at the Turner networks as well as continued cost efficiencies.
Investors seemed to approve of Fox’s decision — its stock gained about 10% in the two days after the announcement. Time Warner, which had seen its stock price rise about 15% since it revealed Fox made a bid for the company, has given back most of that increase in the same period.
While Fox has said it has no other potential acquisition targets in sight and will initiate a $6 billion stock repurchase plan, others believe the company still has the firepower for more deals. It recently added $7.2 billion in cash to its coffers from the sale of satellite assets to British Sky Broadcasting.
“I don’t think he’s going to come back right away, but he has the financial wherewithal to do that if he wants to,” Elevation LLC analyst Stephen Sweeney said of Murdoch.
While Wall Street waits for Murdoch’s next M&A move, both Time Warner and Fox are mapping out their futures.
For Time Warner, that means taking a fresh look at premium network HBO and its popular online site HBO Go.
Bewkes said that HBO Go could add content from Time Warner’s Turner networks or other companies to the online service’s vast programming library.
“What we’re doing is trying to be best-in-class, to have a platform that could deliver the Turner networks and frankly other networks — they don’t have to be ones that we own,” Bewkes said.
Turner’s own strategy to boost ratings and win back younger viewers — dubbed Turner 2020 — already appears to be taking hold. In the second quarter, TNT was ad-supported cable’s No. 1 network among total viewers and adults 18- 34, 18-49 and 25-54.
At Fox, the focus is on building on the success of new and established networks.
The media company said it expects cash flow to rise to the high single digits in fiscal 2015, fueled mainly by cable networks, which are expected to grow cash flow in the high-single to low-double-digit range, led by contributions from Fox News Channel, its regional sports networks and its international channels.
“We are a strategically complete company and have a clear sense of where we are going,” Murdoch said after announcing the Time Warner bid withdrawal.
