Coverage: The day the deals are pulled
Many of the business headlines today were about abandoned deals. First Rupert Murdoch’s Fox withdrew its bid for Time Warner. Then the news broke that Sprint was backing away from T-Mobile.
Since I love reading reporters covering their own company, here is the piece from Wall Street Journal reporters Martin Peers and Keach Hagey writing about the Fox deal.
21st Century Fox abruptly abandoned its takeover pursuit of Time Warner Inc., citing both Time Warner’s unwillingness to “engage with us” and a sharp drop in Fox’s stock price which made a deal “unattractive to Fox shareholders.”
Fox’s stock had fallen about 11% since news broke last month that it had made a takeover offer for Time Warner valued at $85 a share, or about $80 billion, in a mix of cash and stock. Time Warner rejected the offer, but Fox had signaled it was prepared to continue fighting, including possibly raising the offer to between $90 and $95 a share, or as much as $89 billion.
But even a price of that range wasn’t likely to be enough for Time Warner, which made clear in a statement last month that it believed its own plans for growth would deliver more value for shareholders than any proposal Fox was in a position to make.
People close to Time Warner indicated that if it were going to sell, it would want a cash offer of well over $100 a share, a price that would stretch Fox’s balance sheet.
Time Warner, in a news release Tuesday, acknowledged Fox’s withdrawn offer and said it was “well positioned for success with our iconic assets.”
And turning to today’s other big break-up, Michael J. de la Merced wrote about the Sprint/T-Mobile deal for The New York Times:
Sprint and its corporate parent, the Japanese telecommunications giant SoftBank, have decided to drop their pursuit of T-Mobile US after conceding that antitrust regulators would block a deal in an industry that is dominated by just a few large players, a person briefed on the matter said on Tuesday.
The decision, made at a Sprint board meeting on Tuesday afternoon, is the second failed effort by large American wireless carriers to merge in three years. And it represents a serious blow by SoftBank to develop a big new challenger to the two giants of the American cellphone industry, Verizon and AT&T.
The end of the deal leaves open the question of what paths Sprint and T-Mobile will forge as smaller competitors to the enormous titans of their industry. Combined, the two control less than a third of the United States’ wireless market.
Shares in T-Mobile fell nearly 9 percent in after-hours trading on Tuesday, while Sprint’s shares tumbled 15 percent after the markets had closed.
In recent years, T-Mobile has shaken up the industry with an array of novel pricing plans, gaining admirers among both analysts and investors, but Sprint has lost customers for several quarters as it struggles to upgrade its network.
According to Matthew Garrahan writing for the Financial Times, the Fox/Time Warner deal fell apart due to pricing and succession planning:
Most analysts had expected Mr Murdoch to return with an improved offer after the company’s first proposal was rejected. But people familiar with the situation told the FT that no new bid would be forthcoming. “We’re done,” a person close to the company said.
Fox first discussed abandoning the bid on Monday at a meeting in the fifth-floor office of the company’s historic Hollywood studio between Mr Murdoch, his two sons Lachlan and James, Chase Carey, chief operating officer, and John Nallen, chief financial officer. The board then authorised the withdrawal on Tuesday, the person said. The company also launched a $6bn share buyback programme.
Jeff Bewkes, Time Warner’s chief executive, had vigorously opposed the offer, saying it undervalued the company.
Time Warner, which owns CNN, HBO and the Warner Brothers studio, also expressed concern about the structure of the bid, which contained a large proportion of non-voting Fox shares, and about succession plans.
Mr Bewkes had the full backing of his board and a shareholder backlash, which had been anticipated by some in the Fox camp following his rejection of the offer, failed to materialise. In a statement Time Warner said it was “committed to enhancing long-term value” and “well positioned for success”.
And turning back to the other break-up, Alex Sherman, Cornelius Rahn and Matthew Campbell wrote for Bloomberg that Sprint plans to name a new head now that the deal is over:
Sprint plans to name Marcelo Claure, the founder of mobile-phone distributor Brightstar Corp., as its new chief executive officer as soon as today, according to two people familiar with the situation, who asked not to be identified because the information is private. Claure will replace Dan Hesse, who has led the company since 2007.
The decision by Sprint ends a nine-month effort by Japanese billionaire Masayoshi Son, whose SoftBank Corp. (9984) controls Sprint, to create a rival to Verizon Communications Inc. and AT&T Inc. Son had envisioned combining Sprint and T-Mobile to create a formidable competitor with the financial power and airwaves to serve more customers and eventually deliver faster broadband to consumers more cheaply than cable.
T-Mobile was willing to move forward on a deal with Sprint if it ceded on sticking points including over the financing structure, people familiar with the talks said. While both companies viewed approval for a deal as a long shot, given the current administration’s stated goal of having four competitive wireless companies in the U.S., Sprint ultimately decided the regulatory environment was prohibitive, one person said.
The companies couldn’t agree on how much SoftBank should kick in to finance the deal, or how much Sprint should raise, which would be on the new balance sheet of the combined company, one person said. They also couldn’t reach an agreement on how much of the financing should be bridged, the person said.
It’s been a long time since deals this large fell apart, and it’s even more unlikely for two to happen in one day. I’m sure there are a few investment bankers crying over the lost fees. But it is hard to argue that either deal would help consumers or shareholders, and that’s likely why they both fell apart.