Murdoch said Tuesday that he wanted to orchestrate a friendly, not hostile, takeover. But Time Warner Inc.'s board dug in, and that meant Fox would have had to wage a contentious and protracted fight that could risk the company's value.
Over the weekend, Murdoch and his top deputies assessed the situation and concluded that their chances of success were slim. Wall Street and many in Hollywood had been betting that Murdoch would eventually claim Time Warner as the grand prize in his 60-year-plus quest to build the world's most powerful media company.
"He underestimated the resolve of Time Warner's board and [Chief Executive] Jeff Bewkes to fight this thing," said one person close to Time Warner who was not authorized to speak publicly about the situation.
Fox executives were genuinely surprised that Time Warner declined to even entertain deal discussions. Not only did Time Warner reject the $80-billion offer, but its board moved quickly to change its corporate bylaws to make it more difficult for Murdoch to buy the company.
The value of Fox shares slumped since news of the takeover attempt became public last month. Questions were also growing over whether the U.S. government would block such a colossal media combination, and if investors had sufficient confidence in Murdoch's sons' ability to someday run the company.
Hollywood factions, including the Writers Guild of America, also were girding for war. They were fearful that the consolidation of two of the largest studios could erase hundreds of high-paying jobs.
Time Warner boasts such assets as HBO, CNN, TNT, Cartoon Network and Warner Bros., Hollywood's largest television and movie studio. Fox owns the 20th Century Fox movie and television production studios; Fox broadcast network; cable channels Fox News, FX and Fox Sports; and interests in National Geographic Channels and the British Sky Broadcasting pay-TV service.
Murdoch, in announcing that he was withdrawing the Time Warner bid, still maintained the deal would have created a "unique opportunity." But all along, Fox had stressed that it would be disciplined in its bidding, and that it would not overpay.
Fox's shareholders were getting increasingly nervous that Murdoch's desire to add to his empire could prompt him to bid far more than Time Warner was worth.
Investors have not forgotten Murdoch's $5.6-billion takeover in 2007 of Wall Street Journal publisher Dow Jones & Co., which resulted in a writedown of nearly $3 billion.
Shareholders questioned how high Fox was prepared to go.
"Investor perception tended to be somewhat negative with concerns over 'empire building,' [or] 'over-paying' for Time Warner," said Wells Fargo Securities media analyst Marci Ryvicker in a report.
Some analysts had predicted that Fox would need to offer at least $105 a share for Time Warner to clinch a deal, a nearly 50% increase over what Time Warner shares were trading at in early July. But Fox wasn't prepared to go that high. Murdoch also would have had to take on more debt to clinch the deal, which he was loath to do.
Fox board members, meeting Tuesday in Los Angeles, concurred with the decision.
Murdoch, in his statement, acknowledged the risk to his company's shareholders: "The reaction in our share price since our proposal was made undervalues our stock and makes the transaction unattractive to Fox shareholders."
21st Century Fox's Class A shares had lost more than 10% of their value since the deal was disclosed July 16. The shares recovered 8% in after-hours trading late Tuesday. Fox also announced that it would spend $6 billion to buy back its shares.
Meanwhile, Time Warner shares fell 11% on news that Fox abandoned its bid — erasing much of the gains the stock had made in recent weeks. At one point, shares of the company were up 22% from their trading levels in early July.
Executives from Time Warner and Fox are expected to separately address the failed bid Wednesday when both companies release quarterly earnings reports. Analysts were poised to ask tough questions about the deal and the strength of Time Warner's business plan if it intended to remain independent.
In a statement, Time Warner said it remained "committed to enhancing long-term value and we look forward to continuing to deliver substantial and sustainable returns for all stockholders. Time Warner is well positioned for success with our iconic assets. ... We thank our stockholders for their continued support."
Fox's unsolicited bid for Time Warner came in the midst of intense consolidation in media. Earlier this year, Philadelphia cable giant Comcast Corp. announced plans to buy Time Warner Cable. In May, AT&T struck a $49-billion deal to acquire satellite broadcaster DirecTV.
But in those deals, both sides were happy to head to the altar together.
There was also speculation among observers — and even some Fox executives — that Murdoch's latest move was simply a negotiating maneuver. But people close to Murdoch shot down those theories, saying the company had indeed pulled the plug.
Times staff writer Joe Flint contributed to this report.