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Would 21st Century Fox Be Interested in Time Warner Again?

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Jan. 21 2016, Updated 1:06 p.m. ET

21st Century Fox’s bid for Time Warner?

On January 8, 2016, Benzinga reported, citing an unknown source, that 21st Century Fox (FOXA) had made a bid for Time Warner (TWX) at $105 per share. 21st Century Fox later denied making a bid for Time Warner.

Time Warner was on the radar of 21st Century Fox earlier. In 2014, 21st Century Fox made a bid for Time Warner at $85 per share, which it later withdrew.

Now, let’s explore in detail why the acquisition of Time Warner would make sense for 21st Century Fox.

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Why would 21st Century Fox consider acquiring Time Warner?

In the event of a merger with Time Warner, the combined entity of 21st Century Fox and Time Warner would give rise to a media giant in the media sector. This is because there would be growing operational synergies between the businesses of the two companies, spanning from Cable Networks to content licensing to the movie production business. The combined entity would also have a rich content library that could result in higher content licensing fees.

21st Century Fox, Comcast (CMCSA), and The Walt Disney Company (DIS) jointly own over-the-top service Hulu. Hulu has so far stayed away from international markets. If 21st Century Fox goes on to acquire Time Warner, it could either launch its OTT service internationally or expand Hulu to international territories.

The same Benzinga report also states, citing a November 2015 research note by the research company Harriss, that in the event of a merger, the combined entity could be a significant rival to The Walt Disney Company’s (DIS) ESPN.

Sports telecasting rights are an expensive business, but live sports broadcasts are extremely popular among viewers both in the United States and internationally. Live broadcasts of sports events also help media companies rake in advertising revenues, as advertisers prefer events that get more viewership.

In the event of a merger, the combined entity could bid aggressively for sports telecasting rights through Turner Sports and Fox Sports and would be a potential rival to Disney’s ESPN.

Disney’s ESPN is already facing troubled times due to subscriber losses and the rising cost of sports telecasting rights. As the chart above indicates, in fiscal 2015, Disney’s ESPN had subscribers of 92 million, a fall of 3 million subscribers over fiscal 2014.

Time Warner makes up 0.3% of the iShares Russell 1000 Growth ETF (IWF). For an investor interested in an exposure to the Computers sector, IWF holds 5.8% of the sector.

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