21st Century Fox Inc.’s bombshell bid of $75 billion for Time Warner Inc. (TWX) started as a chat over lunch between two longtime friends: Fox President Chase Carey and Jeff Bewkes, Time Warner’s chairman and chief executive.
Carey, Rupert Murdoch’s No. 2 at Fox, approached Bewkes about a merger of the two media companies on June 9 in New York, people familiar with the matter said. Bewkes, 62, didn’t say if he supported a deal and raised several concerns ranging from Fox’s dual-class voting structure to what would happen with CNN, said the people, who asked not to be named because the matter is private. Time Warner’s CEO ended by telling Carey, 60, he needed to inform his board and would get back with an answer.
He never did.
Carey called Bewkes at least twice seeking a reply. Bewkes said he needed more time.
Without a response, New York-based Fox (FOXA) stepped up the pressure, with a June 24 letter to Time Warner from Chairman and Chief Executive Officer Murdoch that laid out the proposal in detail and addressed the issues raised by Bewkes, according to the people.
Fox finally got its answer on July 8: a two-sentence reply came back from Bewkes to Murdoch saying Time Warner, the owner of HBO, CNN and the Warner Bros. film studio, had no interest in the proposal.
“The board has determined that it is not in the best interests of Time Warner Inc. and its stockholders to pursue your proposal,” the text read. “The board is confident that continuing to execute on our current strategic plan is the best path forward for the company and our stockholders.”
Keith Cocozza, a spokesman for Time Warner, declined to comment beyond the company’s statement today rejecting the bid. Nathaniel Brown, a Fox spokesman, also declined to comment beyond an earlier statement today confirming its offer.
Murdoch’s bold grab for a competitor reflects the growing recognition among diversified media companies -- producers of films and TV shows and owners of cable channels like Fox News, TNT and HBO -- that they need to bulk up as their main distributors, the largest U.S. pay-TV providers, also combine.
Fox mounted its bid as AT&T Inc. (T) is acquiring DirecTV, the largest satellite-TV provider, and Comcast Corp. seeks to complete a deal for Time Warner Cable Inc., joining the No. 1 and No. 2 U.S. cable TV services.
In its offer, Fox proposed swapping 1.531 of its Class A shares and $32.42 in cash for each share of Time Warner, according to a statement today from the target company. Fox is willing to pay more than $75 billion for Time Warner, according to people with knowledge of the matter.
Over that June 9 lunch, Bewkes expressed several concerns about deal to Carey, who became deputy of Murdoch’s in the 1980s, raising the issue of Fox’s dual-class share arrangement, said the people. That structure gives Murdoch more power and no voting rights for Class A stockholders.
In his letter, Murdoch wrote that many Time Warner shareholders are already investors in Fox Class A shares and therefore probably wouldn’t be concerned about the reduced voting rights that would result from the cash and stock bid , the people said.
Fox estimated the combined company could achieve more than $1 billion in cost savings, by eliminating overlapping functions such as human resources, sales and information technology operations, said one person. The company said the figure could go higher once it’s able to conduct due diligence on Time Warner, according to the person.
Bewkes, who started with the company’s HBO unit in 1979 and became Time Warner’s CEO in 2008, also questioned who would run the company after 2015, according to one person. Carey has the option to step down at that time under his current two-year contract. Bewkes asked who would deliver the $1 billion or more in cost reductions if Carey left.
Murdoch told Bewkes Carey’s contract would be extended to at least the end of 2016. He also asked Bewkes to stay on with the combined company, though it was clear Bewkes wouldn’t run it. Management would be decided by choosing the best from each side, Murdoch said in the letter, according to these people.
Bewkes also raised a concern over joint ownership of Time Warner’s 24-hour news channel CNN and Fox News, the most-watched cable news network, one of the people said. In his letter, Murdoch addressed that, too, saying CNN could be sold up front to ensure the deal could be completed. The network could fetch between $6 billion and $8 billion, one person said.
In its statement today, Time Warner cited some of those concerns and said its own strategic plan will deliver more value to investors.
“The unique value of Time Warner’s industry-leading businesses including its portfolio of networks and its film studio and television production business is only going to increase,” the company said.
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