Two billionaire money managers who own shares in Time Warner Inc. (TWX:US) said Rupert Murdoch’s bid for the media company will be hard to resist, particularly if he comes back with a higher offer.
Ken Griffin, chief executive officer of hedge-fund firm Citadel LLC, said the deal makes sense for the company’s shareholders, and Mario Gabelli, CEO of Gamco Investors Inc. (GBL:US), called it “hard for a board to turn down.”
“It’s going to get tough to say no,” Griffin, 45, said in a keynote speech at the fourth annual CNBC Institutional Investor Delivering Alpha conference in New York today. “Murdoch has a history of being willing to go the extra mile to get deals done that are important to him.” Griffin’s $20 billion investment firm held stakes (FOXA:US) in both Twenty-First Century Fox Inc. (FOXA:US) and Time Warner as of March 31.
Murdoch’s Twenty-First Century Fox is willing to pay more than $85 a share for Time Warner, according to people with knowledge of the matter, a sign the company is undeterred after being rebuffed in an initial offer. A deal would reshape the media industry by giving the TV-and-film companies bargaining power in negotiations with cable operators such as Comcast Corp. (CMCSA:US) and Time Warner Cable Inc. (TWC:US), which are in the process of their own merger.
Time Warner soared 17 percent to $83.13, the biggest gain in 14 years, at 4:15 p.m. in New York.
John Paulson, founder of the hedge fund firm Paulson & Co. that oversees about $21.4 billion, said the surge presents a risk for investors still pondering whether to purchase Time Warner ahead of a potential deal.
“If you buy Time Warner stock at $83, is Murdoch coming back and how high would he pay to make sense for shareholders?” Paulson said at the CNBC conference. “And if he doesn’t come back, the stock is up $12 today and could potentially fall. It’s not a slam dunk as to what the outcome will be.”
The shares could also rise further, according to Kevin Holt, senior money manager for the $13.1 billion Invesco Comstock Fund. (ACSTX:US) He said Time Warner’s sports coverage rights and television production studio would prove particularly valuable to Fox. Holt, who owns both Fox and Time Warner shares, said in a phone interview that the tie-up makes strategic sense at a price as high as $94 a share.
“The assets complement each other well,” he said. “I think there’s a high probability the deal goes through.”
Gabelli, 72, a mutual-fund manager and longtime media investor, said Murdoch’s most recent offer would value Time Warner at 14.5 to 15 times its earnings before interest, taxes, depreciation and amortization.
A “15 multiple (TWX:US) is not inconsistent,” he said in an interview today with Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”
Gabelli questioned whether the structure of the expected offer, a mix of cash and stock, might be an obstacle.
“My clients would prefer cash because we already own Fox,” he said.
Gabelli said his firm holds about 4 million shares in Time Warner and 10 million shares in Fox.
Fox estimates that the combined company could achieve more than $1 billion in cost savings, including through the elimination of overlapping back office, human resources, sales and information technology operations, according to the person, who asked not to be identified because the information is private.
“Rupert has this vision of the future 10 years from now and understands the notion that you can get a lot of costs out of these content companies,” said Gabelli, whose firm managed $47.6 billion as of March 31.
Chuck Freadhoff, a spokesman for Los Angeles-based Capital Group Cos., the largest Time Warner shareholder among money managers, said his firm declined to comment on a potential deal because it doesn’t discuss individual holdings. Charles Keller, a Fidelity Investments spokesman in Boston, and Lauren Post, a spokeswoman at New York’s BlackRock Inc. (BLK:US), declined to comment.
To contact the reporters on this story: Christopher Condon in Boston at email@example.com; Meghan Morris in New York at firstname.lastname@example.org
To contact the editors responsible for this story: Christian Baumgaertel at email@example.com Mary Romano, Pierre Paulden