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By Ross Kerber
BOSTON, July 16 To clinch a deal to buy Time
Warner Inc, Rupert Murdoch's Twenty-First Century Fox
Inc will not only need to raise the value of its bid
above $80 billion but also boost its ratio of cash to stock,
investors said on Wednesday.
Time Warner said it rejected Murdoch's unsolicited offer, of
which 60 percent would be Twenty-First Century Fox stock and 40
percent cash, a far-reaching proposal that would reshape the
A number of Time Warner shareholders said Fox and Murdoch,
its Chairman and Chief Executive, may have to raise the bid to
as much as $95 a share and boost its cash component to wrap up a
merger. Murdoch offered about $85 a share when the bid was made
"Rupert has got to figure out a way to get more cash in the
deal," said Mario Gabelli, Chairman and CEO of Gamco Investors
Gamco's funds own about 3.6 million shares of Time Warner.
Like many other shareholders, Gamco also owns stock in Murdoch's
company -- about 10.5 million shares -- and Gabelli said some of
his own investors are not eager to increase the number of those
shares as part of a merger.
Another executive at one of Time Warner's large
institutional shareholders also said he would look for Murdoch
to offer a higher ratio of cash to firm up the value of the
deal. Prospects for gains in Fox stock in the near term could be
constrained by the difficulties of merging the two businesses,
including wringing out cost savings, and the effect of the
likely debt burden Fox assume after borrowing billions of
"Cash is cash, so you know exactly what the value is," this
Even though this executive, who spoke on condition of
anonymity because of company policy, said he thought the overall
value of the proposed deal was fair, Murdoch can still raise his
"It's a corporate poker game for sure, and Murdoch never
plays his best card first. There's always another card left to
be played," this person said.
RISK AND UNCERTAINTY
Time Warner shares rose 17 percent to $83.13 in trading on
Wednesday after the company disclosed the offer and its
rejection. Including the assumption of Time Warner debt, the
deal would have been worth $94.3 billion, according to Thomson
Reuters data. Twenty-First Century Fox shares fell 6 percent to
Time Warner said the strength of its own strategy and
"significant risk and uncertainty as to the valuation" of Fox's
stock were reasons for rejecting the bid. It also noted the
stock did not have voting rights, a type of share that typically
trades at a discount.
A Time Warner spokesman declined further comment. A
spokesman for Twenty-First Century Fox declined to comment.
Mitch Zacks, portfolio manager and principal of Zacks
Investment Management of Chicago, said Time Warner's board may
have rejected the offer as a bargaining tactic.
"My guess is that if the offer goes to about $95 per share,
the board would have a hard time turning it down," he said.
Zacks declined to discuss exactly what price he would accept
to sell his own shares. He said his firm has about 192,000 Time
Warner shares and none of 21st Century Fox.
Zacks also noted low interest rates make it easy for
companies to finance borrowing but that stock prices are at
all-time highs, creating currency for deals and helping drive an
M&A boom. A high stock price could be tempting Murdoch's company
to prefer stock than cash as its currency.
Shawn Narancich, executive vice president at Ferguson
Wellman Capital Management in Portland, Oregon, said with
Wednesday's price run-up, Time Warner now trades in line with
some competitors, about 20 times estimated 2014 earnings.
Time Warner's growth projections could justify its rejection
of the original offer, Narancich said. As a shareholder he said
he would likely sell Time Warner shares if Fox or another buyer
offered $90 to $95 a share.
"At those levels, it becomes harder for Time Warner to argue
the merits of continuing to remain independent," Narancich said.
(Reporting by Ross Kerber; Editing by Richard Valdmanis and