Murdoch moves on Time Warner

As pipes companies merge, another round of media consolidation

Seven years ago, when Rupert Murdoch stunned the media world by bidding for The Wall Street Journal, its parent company turned him down flat. Investors didn’t buy the rejection, and Dow Jones stocks jumped immediately to just under Murdoch’s unsolicited $60-a-share bid. Three months later, the Bancroft family signed over the company, and the rest is history.

Now Murdoch is after much bigger prey: Time Warner. Andrew Ross Sorkin reported in The New York Times this morning that Time Warner’s board rejected an unsolicited $85-a-share bid last week from Murdoch’s 21st Century Fox.

The arbs pouring into Time Warner shares today (70 million shares changed hands, 14 times the volume on a normal day) are betting that somebody will buy Time Warner, and that’s all but an inevitability now, as Murdoch knows. Time Warner shares closed yesterday at $83.13, up 17 percent on the day. They’re at $86 today, which means investors think Murdoch will be forced to raise his bid, either by an outside bidder or by Time Warner’s board.

If Murdoch wins, the media consolidation would be unprecedented. His combined company would be a $150-billion media colossus, with HBO, Fox, Fox News, Fox Sports, TNT, TBS, CW, Cartoon Network, Headline News, FX, 20th Century Fox, Warner Brothers, New Line Cinemas, DC Comics, Castle Rock Entertainment, Fox Searchlight, 28 local TV stations, and much more. Not to mention Murdoch’s WSJ, the New York Post, Harper Collins, and his overseas assets. Fox has signaled that it would sell CNN to avoid antitrust issues.

Murdoch’s deal doesn’t make much sense from an immediate business perspective. He claims the combined companies would save $1 billion in “synergies,” but news of the bid has knocked about $4 billion off the market value of 21st Century Fox.

And the deal would have a knock-on effect, driving other media companies to consolidate, as well. Consolidation begets consolidation, and Wall Street is already salivating over that prospect.

Murdoch’s bid itself is largely to defend against consolidation in the industry that controls how all that media content is piped into people’s homes. In recent months, Comcast and Time Warner Cable have agreed to merge, as have AT&T and DirecTV. If they succeed (both are being scrutinized by regulators), the two resulting firms would control more than half of the cable and internet market in the US. That will give them significantly more leverage in their battles with content companies over carriage fees, not to mention in how they price their services for customers.

Of course, with Murdoch, the bid isn’t just defensive. It’s also a power play. But it’s worth noting that he doesn’t always get his way. Four years ago, Murdoch went after the 61 percent of BSkyB, the European pay-TV company, that News Corp. didn’t already own, in a $12.5-billion bid. One year later, the hacking scandal forced him to withdraw in disgrace.

Now the scandal-tainted part of his empire has been spun off into a separate company that Murdoch still controls. But the scandal could flare up again, ruining Murdoch’s latest bid for world domination. As we learned last month, he’s a suspect now in the sprawling investigations into criminal corruption at his British tabloids.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,