Fox's Chairman and CEO Rupert Murdoch said that Time Warner's board did not participate in discussions.
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.
Murdoch also said that Fox had become undervalued, citing a 11% decline in share price since the bid was announced in mid-July.
While the Financial Times reports that no new bid will be forthcoming from Fox, the withdrawal of Fox's offering to buy Time Warner could be part of Murdoch's negotiating strategy.
By removing his offer from the table, Murdoch is forcing Time Warner's board to respond to its refusal to participate in negotiations. In addition, the move could force Time Warner's price lower. Shares in Time Warner dipped on the news of Fox's withdrawal, falling almost 11% in after hours trading. At the same time, Fox is seeing a boost. Shares in Murdoch's company rose over 8% Tuesday evening.
If Fox had been able to acquire Time Warner, it would been the latest in a string of high-profile media deals including Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC)and ATT (NYSE:T) and DirecTv (DTV). "Now, the television networks and film studios that make up the content side of the media business should follow suit - or so the theory goes," explains the Financial Times. "This is because they need greater heft and leverage to negotiate effectively with the distributors, which have become significantly larger entities."
With that in mind, the idea of some type of media deal being in the works could be a strategic necessity if Time Warner, or Fox for that matter, is going to successfully compete against these larger entities.
TIME WARNER'S STRATEGY
Then again, maybe the strategy is really the brainchild of Time Warner CEO Jeff Bewes. As the Financial Times noted last month, Bewes believes "believes new cost-cutting and revenue raising measures… will drive Time Warner's earnings and share growth beyond what 21st Century Fox is offering" and "if the company is to be sold, he would prefer a competitive auction" - one that takes into account the full results of its strategic plan.
"Why would we sell now when we haven't seen the full results of our strategic plan?" said a person close to the company in the Financial Times. "If we are going to sell, we would do it in a few years when we've seen those benefits - and we will run an auction to get the best price for our shareholders, rather than sell now to a single buyer."
By ignoring Fox's offer for the company, Bewes may get enough time for that plan to be realized before a deal is negotiated, or even discussed. A bid for Time Warner could still be in the works. Fox is the only game in town, for now. Another deal could emerge as smaller companies look for ways to leverage synergies and remain competitive against larger rivals.
ALL ABOUT TIMING
The timing of the announcement of the withdrawal of Fox's offer for Time Warner is interesting. It comes less than 24 hours before both companies report earnings. Fox could be expecting weak earnings and counting on pulling back from the Time Warner deal as a way to bolster its stock. After all, Fox announced a $6 billion stock buyback program when it said it would be withdrawing its offer to Time Warner rather than waiting to give the news during its earnings call.
The withdrawal of Fox's offering to buy Time Warner could have strategic purpose, and likely does. Keep a close eye on Fox's earnings Wednesday and the market's reaction to the news.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.