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 Breakingviews:

As KFC doubles down in China, will profits roost elsewhere?

By Rob Cox

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

A year after the massacre of pro-democracy demonstrators in 1989, Tiananmen Square was a preternaturally quiet place. Unlike the heart of Beijing today, bicycles and pigeons outnumbered cars and people. The only exception to the calm was a bustling corner near the square: the Kentucky Fried Chicken outlet.

With a pocketful of the special currency then reserved for foreigners, I was able to cut ahead of the masses and order a chicken dinner in the summer of 1990. Having spent weeks in the country struggling to order food, and often severely regretting the outcome, I found the gleaming 12,000 square-foot KFC offered a certain security. It may not have been fine dining, but its taste was predictable, the price economical and its digestion relatively assured.

U.S. spying on Germany: Making enemies out of allies, and for what?

German Chancellor Merkel attends a session of Bundestag in Berlin

What were they thinking?

In the wake of last fall’s revelation that the National Security Agency had wiretapped German Chancellor Angela Merkel’s cell phone, the report of U.S. intelligence’s involvement in two other likely cases of spying on Germany is mind-boggling.

Now the story has taken a dramatic new turn, with Germany expelling the CIA chief of station in Berlin — an almost unprecedented step by an ally. This unusual action reflects how seriously the Merkel government takes these spying allegations.

What could the CIA hope to gain by infiltrating the BND, the German Federal Intelligence Service, knowing there was a chance that the operation might be exposed? What was worth this risk?

from Breakingviews:

Hollywood’s hopes in China rest on Youku

By Rob Cox

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

Look around the subway in Beijing or Shanghai and maybe nine of 10 passengers are watching videos on their mobile devices. Chances are most of them are watching content delivered to them by Youku Tudou. The country’s leading internet television operator streams 400 million videos a day. In that sense, Youku is Netflix and YouTube - plus Comcast and Liberty Media - stuffed into one dumpling. It is also the nexus for Hollywood’s high hopes in the Middle Kingdom.

You wouldn’t know it from Youku’s financial reports. The company founded by Victor Koo, and run day-to-day by a former student of central planning, Dele Liu, is listed in New York, where it commands a relatively modest $4 billion market cap compared to Netflix’s $26 billion. In the first quarter, it lost $36 million on revenue of $113 million. Still, the company is making progress, enough that China’s sultan of e-commerce, Alibaba, bought 16.5 percent of the group for $1 billion in April.

US-Iran relations: When history isn’t history after all

STUDENTS MARCH TO GATES OF TEHRAN UNIVERSITY AFTER NATIONAL STUDENT'S DAY RALLY.

I learned what a trickster history can be 20 years ago at Hanoi airport. After everything the United States gave and lost in Vietnam while trying to keep it safe from Communism, who would have thought you would find the lion lying down with the lamb at a business convention? But there it was, capitalism in capital letters, a billboard advertising VIETNAMERICA EXPO!

Who won that war again?

Things like that change how you understand the world — if only by teaching you to wonder about even those things you think you know for an absolute fact.

It happened again last weekend. I read something that laid waste one of the most common assumptions of Cold War history: that an expert 1953 CIA covert operation in Iran overthrew a democratically elected prime minister to put the shah back back in control of his country. Ray Takeyh, an Iranian-American historian and senior fellow at the Council on Foreign Relations, argues persuasively in the July/August issue of Foreign Affairs that President Dwight Eisenhower’s CIA did not actually bring down Iranian Prime Minister Mohammad Mossadegh after all.

from Anatole Kaletsky:

Why the Russian sanctions don’t work

putin!!

Why did the U.S. and European sanctions against Russia earlier this week trigger a rebound in the ruble and the Moscow stock market?

To understand this paradox it is worth recalling Yes Minister, the British TV comedy about a blundering politician who stumbles from crisis to crisis with the same justification for every panic response: “Something must be done. This is something --– therefore it must be done.”

The problem with this syllogism is that doing something may be worse than doing nothing -- and the Western decision to rely on economic sanctions in the Ukraine crisis is a case in point.

Don’t cry for the Nabucco pipeline

The site of a newly opened distribution hub of the gas pipeline Gazelle is pictured in Primda

It is too late for regrets. With Europe worried that Moscow could cut off gas deliveries to Ukraine, which would trigger price volatility and supply risks throughout the continent, the failure of the Nabucco pipeline project stands out.

Created to carry Caspian gas into Europe by bypassing Ukraine, Nabucco would have given Europeans and Americans a much-needed sense of supply security — though the pipeline would have carried its capacity of 31 billion cubic meters of gas annually only near the end of this decade. Instead, Europeans are left scratching their heads and searching for alternative energy supplies.

Russia, meanwhile, is likely to remain Europe’s chief natural gas supplier through at least 2020, despite the anticipated growth of diversified gas shipments to Europe, including liquefied natural gas (LNG) from the vast U.S. shale-gas resources.

No drama in Obama’s Ukraine policy

Many are asking: How can we stop Russian President Vladimir Putin from moving into Ukraine and seizing a large chunk of its territory in the east? The actions of forces that resemble the Russian special operations troops who created the conditions for annexation of Crimea suggest that other parts of Ukraine may also be in the Russian strongman’s sights.

The fact is, however, we cannot stop Putin. Or, to be more precise, we should not try to stop him physically. Doing so would require military threats or troop deployments to Ukraine. The stakes do not warrant such a step. It is not worth risking World War Three over this.

Ukraine is not a member of the North Atlantic Treaty Organization. It does not have a formal security treaty with the United States, and its strategic importance is not great enough to warrant such escalation. Though we can feel for Ukrainians — and reject what Putin is doing — this is a classic case of where the old axiom “We can’t be the world’s policeman” does apply.

Confederation: An off-ramp for the Ukrainian crisis

The United States has no good options with regard to Crimea.

The best outcome would be for Crimea to remain an integral part of Ukraine. This will not happen. The next best outcome would be to give Crimea even more autonomy within Ukraine than it now has, federalism on steroids. This is highly unlikely.

The next best outcome would be a confederal arrangement in which Crimea remains formally a part of Ukraine, but would have autonomy over elements of both its foreign and domestic affairs. This is possible but will require adroit diplomacy — not just threats and sanctions from the United States and the West.

The worst outcome would be for Crimea to be incorporated into Russia. On the current track, this may be where we end up.

  •