Rupert Murdoch's bid for Time Warner has been rebuffed, but people familiar with his thinking say he is determined to bring the US media conglomerate into his empire.
Time Warner's stock rose 16.9 percent to US$82.99 on the New York Stock Exchange after news that Murdoch had his sights on Time Warner, the owner of media properties including the Warner Bros. movie studio and cable channels such as HBO and CNN.
Shares of Fox, which owns a broadcast network and the Fox News cable news channel as well as movie studio 20th Century Fox, were down 4.7 percent at US$33.52.
"The way they think about this deal is offensive" in nature, said one person close to the situation, referring to Murdoch and Fox. "It's a chance to put some great programming and content assets under one umbrella."
The offer, first reported by The New York Times, consisted of 60 percent in stock and the rest in cash, Time Warner said in a statement confirming its rebuff.
That would have valued the bid at about US$80 billion, or $85 per share, when it was made in June.
Twenty-First Century Fox, which later confirmed it had made a formal takeover proposal, said no talks were currently under way.
Even so, Murdoch and his advisers are unlikely to abandon the pursuit, a second person close to the situation said, pointing out that he has the "disciplined determination" to get a deal done.
Fox estimates that a combined company, which would have US$60 billion in annual revenue, would save US$1 billion in costs and possibly more, primarily by cutting sales staff and back-office functions, the people familiar with the matter said.
They said detailed negotiations with Time Warner could reveal much higher synergies than US$1 billion, which may then justify sweetening the offer.
A deal may win the blessing of many of Time Warner's shareholders, a majority of whom also own Fox's non-voting stock.
SEEKING DANCE PARTNERS
More broadly, Fox's overtures could accelerate a wave of consolidation that is already reshaping the media landscape.
In the United States, Comcast, the largest US cable provider, offered in February to buy Time Warner Cable for US$45.2 billion in stock. Overseas, Fox's 39 percent-owned British Sky Broadcasting Group is negotiating to buy Fox's Sky Italia and its Sky Deutschland subsidiary in a deal that could net Fox as much as US$13 billion.
As a consequence of the Murdoch bid, "the urgency to find a dance partner will increase across the sector," said Bernstein Research analyst Todd Juenger. "Nobody wants to be the company that gets left out of the consolidation wave, and companies would rather control their own destinies."
CONTENT IS KING
Reuters reported this month that Murdoch was in the midst of a deal that would give Fox the firepower to buy a content company.
In fact, Murdoch started thinking about a potential merger with Time Warner as he was separating 21 Century Fox, which mostly consists of media properties, from News Corp, which focuses on the Wall Street Journal and other publishing assets, people familiar with the company said.
The division, triggered by a phone-hacking scandal at some of Murdoch's British tabloids and completed a year ago, has positioned Fox to become a powerful consolidator of media properties.
Fox has indicated it would sell the CNN cable channel, a direct competitor of Fox News, as part of its proposal to buy Time Warner to clear any regulatory hurdles, according to the people familiar with the matter.
At least one antitrust expert said it was unlikely that any issues that arise that would kill a Fox deal for Time Warner. The source said there were currently five major content companies in the United States, plus numerous smaller ones.
News of the Time Warner bid comes as Fox is reorganising its television business, aiming to lift its network out of last place among the big US broadcasters.