Once again Rupert Murdoch has confounded the media world. He made a surprise announcement on Tuesday that 21st Century Fox had withdrawn its proposal to acquire Time Warner, leaving industry observers in a state of disbelief. Could this really and truly be the end? Or was this just a bit of misdirection on Murdoch’s part to increase pressure on his prey?
Beyond discussion of a new $6 billion stock buyback program to be completed in the next 12 months, the Fox announcement offered few clues about what will come next for the company. At least three scenarios are now in play.
Scenario 1: Withdrawal as Ploy. In the aftermath of Tuesday’s announcement was plenty of skepticism among longtime Murdoch observers that he had genuinely given up his desire to acquire Time Warner. The notion that the dogged media mogul would acquiesce so quickly struck some as improbable and contrary to Murdoch’s modus operandi.
“Anyone who thinks that this is the last move in this particular game of chess hasn’t been paying attention,” said Murdoch biographer David Folkenflik. “This is another way for him to ratchet up pressure on Time Warner … this is far from the end.”
“People like Rupert Murdoch do not base massive strategic decisions on short-term stock fluctuations,” writes Dan Primack. “There is nothing in Fox’s statement that precludes Murdoch from making a future bid, at whatever price. Don’t be surprised if this is just a negotiation ploy.”
If it is a ploy, it’s been an effective one so far. Time Warner’s stock tumbled in the wake of Murdoch’s announcement, and on Wednesday morning, the withdrawn bid largely overshadowed the positive news from Time Warner’s quarterly earnings. If talks eventually do resume, Murdoch will likely be coming back to the negotiating table in a position of greater relative strength, thanks in part to his public termination of interest.
Scenario 2: Murdoch Moves On. In this interpretation, Murdoch genuinely believes Time Warner is too big and too pricey to acquire and has decided to walk away with no regrets and no hard feelings. ”I think this is the new and improved Rupert Murdoch, who has a strategic vision but is better aligned with the interests of public shareholders, and is willing to exercise price discipline,” said RBC Capital Markets analyst David Bank.
A new-and-improved Murdoch, goes the theory, realizes the company has plenty of other ways to spend its sizable war chest. Other conquests beckon. At the moment, Comcast’s pending acquisition of Time Warner Cable and AT&T’s pending plan to buy DirecTV Group are expected to ratchet up pressure on the smaller, independent suppliers of pay-TV programming. As a result, such companies as Discovery Communications, Scripps Networks Interactive, or AMC Networks could come into play. Walking away from Time Warner leaves Murdoch well positioned as a buyer.
Elsewhere, over in the world of print media, there’s no shortage of motivated sellers. Recently on Twitter, Murdoch shot down the rumor that he might buy Tribune Publishing. But in any case, don’t expect Murdoch’s shopping cart to remain empty for long.
Scenario 3: The Big Payback. In this hypothetical, Murdoch chooses to abandon his bid for Time Warner but doesn’t entirely let it go. Instead, he develops a grudge against Time Warner and a long, bloody game of corporate payback ensues. In the months ahead Murdoch would make a sport of trying to undermine the executive who spurned him—namely, Time Warner’s chief executive, Jeffrey Bewkes.
What might that look like? Picture Murdoch in a LeBron James jersey.
Currently, the National Basketball Association is nearing the end of its longterm TV deals with Disney’s ESPN and Time Warner’s Turner Broadcasting. The current contracts are set to expire after the 2015-16 season. Negotiations over the future of the rights are already under way, and according to a recent article in the Wall Street Journal, the NBA is seeking to roughly double its fees.
Enter Murdoch? At the moment, 21st Century Fox is already pouring money into the company’s new sports network, Fox Sports 1, to try to compete head on with ESPN. Imagine Murdoch swooping in and stealing the basketball away from Bewkes at the last minute. That’s the feverish revenge scenario that BTIG analyst Rich Greenfield conjured up on Twitter. Yes, it’s a long shot. But as Greenfield points out, back in 1993, nobody expected Murdoch to outmaneuver CBS for the NFL’s rights to NFC football. Yet here we are, 21 years later, still watching Cleatus.
In the meantime, the only thing for certain is that Murdoch remains full of surprises. On Wednesday afternoon, for the first time in recent memory, Murdoch popped up on the 21st Century Fox quarterly earnings call, where he briefly discussed the abandonment of the Time Warner deal. “As you know, yesterday, we walked away,” said Murdoch. “This is our resolute decision.”
Case closed. For now. Maybe.