CEO Bewkes needs to show Time Warner better alone than with Murdoch

By Reuters

Oct 10, 2014 07:49 PM EDT

Ten years ago, Walt Disney Co, having fended off a hostile bid from Comcast, had to make a case why it was better off as an independent company.

It succeeded. Disney's shares have soared more than 250 percent since.

Now, Time Warner Inc Chief Executive Jeff Bewkes faces a similar moment of reckoning after rejecting a bid for $85 a share from Rupert Murdoch's Twenty-First Century Fox.

Bewkes and other top brass will be under pressure at a meeting with analysts and investors next Wednesday to show they can repeat Disney's magic.

"Disney pleaded the case to get its share price up on their own," said David Miller, an analyst with Topeka Capital Markets.

"We think that Mr. Bewkes will attempt to drive home the same concept," he said, adding it remained to be seen if Bewkes would manage to replicate Disney's sterling stock performance.

Time Warner is trading at around $73 - more than twice its price since Bewkes took over as CEO in 2008, but still below Murdoch's original $85 bid. Fox had considered boosting the offer to as high as $95 a share, people familiar with the matter said.

Rejection has had its price. Time Warner shares have dropped 15 percent since Aug. 5, when Fox walked away from its offer. Fox shares are up 5.7 percent over the same period.

"It's too simple to say that Bewkes has to get the stock price over $85," said Gabelli & Co analyst Brett Harriss. "He has to tell us why he said no to Fox. Time Warner has said nothing - only that at no price would it combine with Fox."

Gabelli, an asset management firm, holds shares in Time Warner. Harriss thought a combined Fox and Time Warner would benefit both companies.

Bewkes, who last stood in front of investors during a similar meeting four years ago, will lay out a long-term vision for the company's Warner Bros movie studio, Turner Broadcasting cable networks and pay TV channel HBO.

Those plans could include letting consumers buy HBO without a cable subscription, given the popularity of the HBO GO mobile app, some analysts have said.

Topeka's Miller said that a new broadband-only product similar to Netflix could crack open new markets.

Topeka estimates that there are approximately 9 million households in the United States with Internet access but no pay TV and roughly 66 million households with pay TV but no HBO.

Indeed, Bewkes has slowly changed his tune about Netflix that he once derided as a "200-pound chimp." He said Monday, at a conference hosted by Hollywood website The Wrap, that he wished he personally owned the streaming video service, given its market value of around $30 billion.

There are other signs of Time Warner's long-term plan that have emerged over the past weeks.

Turner Broadcasting and Disney's ESPN more than doubled their annual payments to the NBA under a new nine-year deal worth more than $22 billion. Collectively, TBS and ESPN will pay more than $2.5 billion, starting in the 2016-17 season, to the basketball league. The networks coughed up more to keep the rights out of the hands of Fox - which started its own sports network - and those of other rivals.

The pricey content deal comes as Turner, which also operates the 24-hour news channel CNN, attempts to crack down on costs. The company, which employs about 14,000 full-time staffers, is poised to slash 10 percent of its workforce.

Focusing on internal operations is how Disney jolted it shares, noted Topeka's Miller - a strategy likely to be embraced by Bewkes.

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