Weekend Economists Commemorate the Dark Knight July 25-27, 2014

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25. Time Warner Dares Murdoch to Bid More Than He Can Pay

http://www.bloomberg.com/news/2014-07-24/time-warner-dares-murdoch-to-bid-more-than-he-can-pay.html

Time Warner Inc. (TWX)’s board is daring Rupert Murdoch to make an offer he can’t afford.

In rejecting an $85-per-share takeover bid by Murdoch’s 21st Century Fox Inc. last week, Time Warner said its own growth plan “is superior to any proposal that 21st Century Fox is in a position to offer.”

That language -- “in a position to offer” -- was no accident. After evaluating Fox’s books, Time Warner concluded that Murdoch would be uncomfortable financing a deal above $100 a share, people familiar with the matter said. The purchase would require so much borrowing it could sacrifice Fox’s credit rating, or use so much stock that existing investors’ holdings would diminish in value, said the people, who asked not to be identified because internal deliberations are private.

Convinced the media company was worth at least $100 a share based on future earnings, Time Warner’s board decided it won’t begin talks at much less than that number, the people said. Fox isn’t currently planning to bid more than $90 to $95 a share, according to a person familiar with Fox’s position.