Opinion

The Great Debate

from Breakingviews:

Time Warner can justifiably hold out for more

By Jeffrey Goldfarb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Time Warner can justifiably hold out for more. Though the $80 billion takeover bid from Rupert Murdoch’s Twenty-First Century Fox includes a 20 percent premium, his quarry may well have been on track to achieve that on its own with a bit more time. The Looney Toons-to-HBO group’s Chief Executive Jeff Bewkes has a reasonable degree of negotiating power.

A 35-year Time Warner veteran who became boss in 2008, he is well versed in the ways of deal-making. Bewkes lived through the creation of the conglomerate, including the acquisitions of Warner Communications and Turner Broadcasting and the notorious merger with AOL. He also spearheaded some of the subsequent dismantling, whereby the company jettisoned theme parks, music, books, sports teams, the internet unit, cable operations and ultimately the magazines that originally begat the empire.

What’s mainly left is a solid collection of cable networks like CNN, TBS and TNT, the pay-TV powerhouse HBO and the Warner Bros. film and television studio. Though Time Warner’s EBITDA margins were better last year than in the comparable divisions at Fox, they’re also not growing as quickly. Even so, it isn’t hard to see how Time Warner’s shares might increase from the pre-offer price of $71 apiece where they were trading before Murdoch’s offer was revealed on Wednesday.

Turner stations should generate about $4.3 billion of EBITDA in 2015, according to Evercore analysts. On a multiple of 12, they’d be worth $52 billion. The lumpier studio business, behind hits like “The Big Bang Theory” and “The Lego Movie,” at 11 times estimated earnings of $1.8 billion creates another $20 billion. And the well-established “Game of Thrones” producer HBO, at 10 times projected EBITDA of $2 billion adds $20 billion more.

from Breakingviews:

Dual-share inequity to figure in Time Warner fight

By Rob Cox

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Rupert Murdoch has one last big takeover left in him. Time Warner makes the perfect swan song for the 83-year-old media mogul. The HBO-to-Looney Tunes conglomerate sits at the top of a pyramid where content is king, has no controlling shareholder and poses few insurmountable antitrust hurdles for Twenty-First Century Fox. But winning won’t just be a matter of price.

To secure his prize, Murdoch needs to be open to ditching the sort of second-class corporate governance that has, ironically, given him the chutzpah to attempt courageous bids like this $80 billion-plus tilt for Time Warner. Specifically, Murdoch will need to consider converting Fox into a one-vote, one-share company to win the battle.

from Nicholas Wapshott:

Comcast: How to win at monopoly

The proposed merger between the cable television interests of Time Warner Cable and its principal rival, Comcast, demonstrates a neat example of how the theory of the free market differs so radically from the marketplace in practice.

In the storybook version of how business works, companies compete for customers by offering rival services and the company with the best products and prices wins. In this fairytale, everyone wins. Customers benefit from competition through a better choice of products and cheaper prices, the good companies take a handsome profit and prosper, and the bad companies go to the wall.

In real life, this heroic version of how the world spins is far less noble. In the mythical version of the free market, companies fiercely compete with each other for market share by trying to outdo each other in pleasing customers. In reality, companies tend to forego the difficult and expensive art of wooing customers from a rival and resort to buying the competition. Buying business is far easier than earning it.

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