Time Warner’s board just changed the company’s bylaws to prevent a small group of shareholders from forcing a vote on Fox’s offer for the company.
The new amendment, which is effective immediately, removed a standard provision that allows 15% of the company’s shareholders to vote to call a “special meeting,” in this case one that could have been devoted to evaluating the Fox offer.
As a result, Time Warner’s shareholders have no ability to force a vote on the deal until the company’s annual meeting next summer. Prior to the amendment, 15% of Time Warner’s shareholders could have forced a meeting in February.
The removal of this provision removes the final stick that Murdoch could have used to force an quick consideration of his offer.
Specifically, it prevents a small group of short-term traders, who have accumulated Time Warner stock since the offer, from having the ability to call a special meeting to consider the deal.
In so doing, it buys Time Warner more time.
According to a source close to the company, Time Warner expects this additional time will help it extract more value from Fox if Murdoch decides to persist in his pursuit of the company. Specifically, according to the source, the bylaw change provides:
* More leverage for the Time Warner board to get a higher price
* More time for shareholders on both sides to consider the offer (Time Warner is likely going to release more details about its future plan in the next couple of months. The company expects that shareholders will be favourably impressed by this plan.)
* More time for Time Warner’s operating performance to add value to the company, and, interestingly,
* More time for Fox to disappoint investors and thus reduce the value of its stock.
(Fox has a history of overpromising and underdelivering, the Time Warner source says, expanding the old adage to all’s fair in love, war, and M&A. Time Warner believes that the performance Fox has promised Wall Street is aggressive and that the company might soon stumble and miss its targets. If that happens, the stock will drop, and Fox’s currency won’t be as valuable, making it harder to get a deal done.)
In other words, Time Warner continues to put actions behind words that it doesn’t want to be acquired right now. And in changing its bylaws, it has removed the one immediate “forcing mechanism” that Murdoch might have had at his disposal — the ability to get a small group of Time Warner shareholders to call a meeting and force a vote.
Thus, to get a deal done, Murdoch will have to raise his offer to a level that is appealing to more than a small group of short-term Time Warner shareholders.