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Summary

  • Time Warner has rejected a proposal by 21st Century Fox to acquire all of the outstanding shares of the company for approximately $80 billion, or $86/share.
  • This event has confirmed my opinion that Time Warner was undervalued, as shown by the 15% increase in stock price.
  • It was difficult to foresee this acquisition proposal, but investors shouldn't be surprised by the upside potential in Time Warner.

It has been confirmed that Time Warner (NYSE:TWX) has rejected a proposal by 21st Century Fox (NASDAQ:FOXA) to acquire all of the outstanding shares of the company for a combination of 1.531 of 21st Century Fox Class A and $32.42 in cash per share. At Tuesday's close, this would value Time Warner stock at approximately $86/share, for a total of around $80 billion. Time Warner's board of directors listed several reasons for rejecting 21st Century Fox's proposal, including;

  • The company's strategic plan will continue to deliver significant value;
  • The value of Time Warner's businesses will continue to grow;
  • The risk and uncertainty of 21st Century Fox's ability to govern and manage the size and scale of both companies;
  • Operational and regulatory risks to executing a combination with 21st Century Fox

Since this news broke, Time Warner stock has gained roughly 15% to $82/share. Analysts believe this deal may eventually get done at a premium price and could create a company that dominates the content industry. With assets including Warner Brother's studio, HBO, TBS, TNT, TruTV, Cartoon Network, and CNN, investors are finally starting to realize how undervalued Time Warner stock truly is. As I've outlined in previous articles here and here, Time Warner has multiple undervalued assets that continue to impress with strong growth and free cash flow.

Source: Update: Time Warner Acquisition