Fox is not likely to raise its bid for Time Warner immediately, a source familiar with the situation tells Business Insider. Rather, the increase, if any, will likely come within “weeks.”
The deal process is playing out the way Fox expected and hoped, our source suggests.
The company’s $US85 per share offer got the attention of Time Warner shareholders. Fox is now listening to those shareholders and considering whether and how to modify its bid.
The Time Warner shareholders we have talked to are clear on their desires and expect the deal to happen. Their key concerns remain:
1) price (Fox has to raise its bid, probably to close to $US100 per share),
2) cash/stock mix (the cash component of the bid has to be increased), and
3) voting rights (some Time Warner shareholders would like some say in the combined company).
A Time Warner shareholder we spoke with today laid out a case that Time Warner’s stock will be worth about $US135 in five years. Discounting that future value, the shareholder arrives at a present-value range of about $US92-$105 for the stock. The shareholder suggested that an offer of $US100 would be enough. (By this logic, $US97 would also presumably be enough.)
This assessment is similar to one another Time Warner shareholder laid out for us last week.
In another deal development, yesterday, Bloomberg reported that Fox is close to selling two of its European pay-TV assets and may use the cash from this sale to increase its Time Warner bid.
The assets, Sky Italia and a stake in Sky Deutschland, could be valued at $US13.5 billion, Bloomberg reported.
A source familiar with the situation confirms Fox’s possible asset sales but says the reported $US13.5 billion number is much too high. Furthermore, the source says, the transaction would trigger some tax liabilities for Fox. Thus, the net cash that Fox would have available from the asset sales to increase its Time Warner bid would only be about $US6-$7 billion.
Time Warner has about 900 million shares outstanding, so each $US1 billion increase in the offer amounts to an increase of about $US1 per share.
If Fox were to use the whole $US6-$7 billion of cash from the asset sales to increase its Time Warner bid, therefore, it could increase the cash component to about $US41 per share, up from $US32.42 in the current bid. The total value of the bid, given Fox’s current share price, would be about $US90 per Time Warner share.
Fox also has additional borrowing capacity that would allow it to borrow more cash without jeopardizing its bond ratings or likely trigger a re-valuation of its stock price. This borrowing capacity could allow it to further increase the cash portion of its bid.