Time Warner (TWX) earnings soar, stocks plunge (+video)
Time Warner (TWX) earnings blew past Wall Street's expectations after it revealed earlier this week that it had rejected 21st Century Fox's unsolicited $76 billion buyout offer. 21st Century Fox head Rupert Murdoch had envisioned creating a movie-and-television powerhouse by devouring Time Warner.
Rupert Murdoch's 21st Century Fox abandoned its attempt to take over Time Warner in a proposed deal that would have combined two of the world's biggest media companies.The next day, Time Warner backed up its assessment that it was just fine without him.
Time Warner (TWX) blew past expectations with its second quarter earnings report, posting adjusted earnings-per-share of 98 cents, well above the consensus estimate of 84 cents.
HBO, the premium cable network, led the charge, growing revenue by 17 percent and adjusted operating income by 23 percent year-over-year. Time Warner attributed the jump to an uptick in subscriptions to HBO and the licensing of some shows to Amazon.
Turner, the division of Time Warner that includes CNN, grew revenue by 5 percent.
The news comes three weeks after Time Warner Inc. revealed that it had rejected 21st Century Fox's unsolicited $76 billion buyout offer.
Murdoch, a voracious dealmaker throughout his colorful career, had envisioned creating a movie-and-television powerhouse by devouring Time Warner. Twenty First Century Fox owns the 20th Century Fox movie studio, Fox broadcast network, and cable-TV channels Fox News and FX while Time Warner's stable includes the Warner Bros. movie studio and TV channels such as TNT, TBS and HBO.
There had been hopes on Wall Street that Murdoch wanted Time Warner so badly that he would raise 21st Century Fox's original cash-and-stock offer bid of roughly $86 per share to as much as $100 per share to win over Time Warner.
Some analysts had expected Murdoch to continue stalking Time Warner, reasoning that the billionaire viewed a takeover as an opportunity to gain a better bargaining position to sell its video content at a time when video distributors are muscling up too.
Comcast Corp., the largest cable and high-speed Internet provider, is trying to win approval to buy rival Time Warner Cable while AT&T Inc. is trying to gobble up satellite TV service DirecTV.
But 21st Century Fox would have had to navigate potentially daunting antitrust hurdles to buy Time Warner. Cultural clashes also loomed had the two companies combined, a factor that turned Time Warner's merger with AOL Inc. in 2001 into a monumental flop. Time Warnerand AOL eventually split, but not before costing their shareholders tens of billions of dollars.
Time Warner had made it clear that it intended to staunchly resist Murdoch's overtures.
In a Tuesday statement, Time Warner sought to reassure its shareholders. "We look forward to continuing to deliver substantial and sustainable returns," the New York company said.
In his own statement, Murdoch said his New York company's "future has never been brighter."
With the proposed Time Warner deal off the table, 21st Century Fox's board approved a plan to spend $6 billion on buying back stock.
Murdoch cited a decline in the New York company's stock price since the takeover bid was announced as one of the reasons for the change of heart. Fox's shares have dropped 11 percent. They rose $2.49, or 8 percent, to $33.79 in extended trading Tuesday.
Meanwhile, investors betting that Murdoch was going to sweeten his offer bailed out of Time Warner. Its stock fell $8.39, or nearly 10 percent, to $76.80 in extended trading. Even with Fox out of the picture, Time Warner's stock remains above its price before Murdoch's interest was revealed.
This isn't the first time that Murdoch has walked away from a deal that he once seemed to prize. In 2008, he gave up on buying DirecTV in 2008 through another company, News Corp., after Liberty Media Corp. chairman John Malone outmaneuvered him. He also withdrew a bid to boost News Corp.'s stake in British Sky Broadcasting Group PLC in 2011 amid outrage over a phone hacking scandal at News Corp.'s British newspapers.
Murdoch's News Corp. split into two companies last year: The newspaper and publishing portion, still called News Corp., and the film-and-TV unit, 21st Century Fox Inc.
Investor statements from Time Warner, Inc. and 21st Century Fox, respectively, are below:
"Time Warner’s Board and management team are committed to enhancing long-term value and we look forward to continuing to deliver substantial and sustainable returns for all stockholders. Time Warner is well positioned for success with our iconic assets, including the world’s leading premium television brand, the world’s strongest ad-supported cable network group, and the world’s largest film and television studio. We thank our stockholders for their continued support."
"We viewed a combination with Time Warner as a unique opportunity to bring together two great companies, each with celebrated content and brands. Our proposal had significant strategic merit and compelling financial rationale and our approach had always been friendly. However, Time Warner management and its Board refused to engage with us to explore an offer which was highly compelling. Additionally, the reaction in our share price since our proposal was made undervalues our stock and makes the transaction unattractive to Fox shareholders. These factors, coupled with our commitment to be both disciplined in our approach to the combination and focused on delivering value for the Fox shareholders, has led us to withdraw our offer.
"21st Century Fox's future has never been brighter. The strength of our leading franchises, combined with the power of our emerging growth businesses and the leadership positions of our international enterprises put us on a path for even greater success."