21st Century Fox Fears Debt in Effort to Acquire Time Warner (Report)
Time Warner has already rejected an $85 per-share offer from Rupert Murdoch's 21st Century Fox but will consider something over $100, multiple reports have stated.
Murdoch, however, won't bid higher than $95 because he wants to avoid taking on too much debt, according to The Wall Street Journal.
The newspaper, which is owned by another of Murdoch's companies, News Corp, reports that Time Warner's board of directors also isn't interested in Fox's offer of a combination of cash and stock unless it includes more cash, which could require Murdoch to borrow so much money it would lower his investment-grade credit rating and increase his interest rates.
Fox's initial offer included 40 percent cash and 60 percent stock and valued Time Warner at $80 billion. Murdoch is not only hesitant to raise the cash portion, he also may be readying an offer of somewhere between $90-$95 per share for Time Warner, still shy of what CEO Jeffrey Bewkes and the rest of the board are looking for, according to the Journal.
Bewkes and company, though, realize that Murdoch isn't likely to give up his quest to merge the two companies without a significant effort that could include going directly to shareholders. As such, Time Warner this week changed its bylaws to make it more difficult for shareholders to call a meeting.
Also this week, Moody's estimated that Fox would have to raise its bid to $105 a share if it intends to keep its offer at 40 percent cash and 60 percent stock, and that would require $35.3 billion in cash. Fox though has so far lined up only a $25 billion loan from Goldman Sachs, according to the Journal, and has $5.5 billion in cash already, along with about $23 billion in debt. Fox could also raise up to $9 billion more in cash by selling Sky Deutschland and Sky Italia to BSkyB, and a deal to do that is reportedly already in the works.
The Journal says that Murdoch's distaste for taking on too much debt stems from a cash crunch in the 1990s that forced News Corp "into a lengthy period of negotiations with its banks, ending with a restructuring of $7.6 billion of debt. News Corp later sold some assets and issued new shares to reduce debt."