Time Warner (TWX) Rejects 21st Century Fox Bid, Shares Surge Over 17%

by Ryan Fitzwater, Director of Research, The Oxford Club

Shares of Time Warner Inc. (NYSE: TWX) are soaring today after news surfaced that the company shot down an $80 billion takeover bid last month from Twenty-First Century Fox (Nasdaq: FOXA), the TV and film company controlled by Rupert Murdoch.

Today, Twenty-First Century Fox confirmed reports of the offer and Time Warner’s subsequent rejection of the offer. Time Warner’s shares are up over 17% on the news.

If a deal had been reached, it would have combined the two top juggernauts in the cable network business.

Even rumors of a large takeover like this could send a chain reaction of consolidation among other content producers. Oversized mergers in the entertainment business could be in our near future.

The bid Murdoch threw at Time Warner would have provided current shareholders $85 per share in stock and cash. At the time of the offer, that was a premium of more than 20% on the stock.

No surprise that shares today are reacting positively, jumping more than $12 to $83.50 per share.

While a rejection from Time Warner’s board sends a message it believes it can perform better on its own, I don’t think we have seen the last of bid offers from Murdoch. He could easily come in at an even higher price in the future - which wouldn’t surprise me.

With the future unknown, we can only speculate what will happen from here.

But today, we can look at how Time Warner performs from a fundamental standpoint to help us gauge its future potential... takeover bids or not.

Let’s get a fundamental grade on the stock with our Investment U Fundamental Factor Test:

Earnings-per-Share (EPS) Growth:  In the most recent quarter, Time Warner saw an 81.25% jump in EPS. This is excellent earnings growth, and the company definitely makes the mark here.

Price-to-Earnings (P/E): Time Warner’s current P/E clocks in at 16.27, almost 10 points below the industry average of 26.05. We have ourselves another positive metric.

Debt-to-Equity Once again, Time Warner is outperforming the wolf pack. It has a debt-to-equity of 67.54%, almost half the size of its industry peers, who are averaging over 120%.

 Free Cash Flow per Share Growth : Time Warner is knocking it out of the park on this fundamental metric. It saw a whopping 160.92% jump in free cash flow last quarter. This is a big, big checkmark.

Profit Margins Yep, Time Warner just hit five metrics in a row. Profit margins across the industry average 7.95%, while Time Warner’s are 17.12%.

Return on Equity Unfortunately, Time Warner couldn’t get through the fundamental gauntlet without taking a minor hit. Its ROE of 14.09% is five points below the industry average of 19.28%... you can’t always win them all.

*Why did we look at these specific metrics? Find out more here.

Fundamental Factor Test Score

A: Strong Buy (Hits five or more key metrics)

Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That’s why The Oxford Club offers over a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth. For more details, click here.

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