Time Warner Inc. (NYSE: TWX) is one of the biggest players in the media industry. However, just like its peers, Time Warner stock has taken a beating.
Time Warner stock is down about 20% over the last six months. This has sparked talk of an activist investor getting involved. Or, at the least, Time Warner is looking to spin off its HBO business, which should be more valuable if it were sold or spun off.
It’s worth noting that Time Warner also owns other networks, including TNT, TBS and Cartoon Network. The media industry has been struggling, and with that, activist investors are likely looking to shake things up.
Time Warner is rumored to have various activists interested. In turn, Viacom (NASDAQ: VIAB) has SpringOwl and Mario Gabelli involved and 21st Century Fox (NYSE: FOX) has drawn the attention of ValueAct Capital.
Activists at the Time Warner Gate?
It was first reported that Carl Icahn might be taking a look at Time Warner. Recall that Carl Icahn took on Time Warner in 2006 trying to get the company broken up. Then, it was Icahn’s former protégé, Keith Meister of Corvex Management. Of note, Corvex actually owns Time Warner stock.
As of the end of the third quarter, Corvex owned a 0.5% stake and it’s said that the hedge fund has upped its position to 1%. Now, there’s another activist that might be interested: Nelson Peltz of Trian Partners. It’s said that Peltz is considering making an investment in the media space, with Time Warner as the prime target.
Why are all these activists interested? The obvious answer is HBO, but it’s not that simple.
The Time Warner Thesis
The key thesis involves selling the HBO business, but we could see a spinoff of HBO, or even an outright sale of the entire Time Warner business.
However, Time Warner CEO Jeff Bewkes has notes that he’s not interested in selling or spinning off HBO. Rather, he would like to see the entire company sold.
The likely buyers? Notably, 21st Century Fox, which tried to buy Time Warner in 2014 for $85 a share. Such a deal would be a big positive for both companies as scale could help the cable TV businesses succeed in a world versus Netflix (NASDAQ: NFLX).
However, Time Warner wasn’t interested in a buyout at $85 a share, saying it undervalued the company. But with Time Warner’s stock trading at $70 a share, it is likely much more interested in a deal. And with 21st Century Fox shares down 18% over the last six months, it could well be interested as well. The two would enjoy impressive synergies along the lines of shared cable networks and movie businesses.
Who Could Buy Time Warner?
Possible buyers of Time Warner are not limited to 21st Century Fox, however. Other suitors could include Apple (NASDAQ: AAPL) and Amazon.com (NASDAQ: AMZN).
Amazon has its own offering with Amazon Prime Video. However, it’s still interested in upping its video streaming content. It’s producing its own content and is entering licensing deals with other media players. Basically, Amazon’s video service is following in Netflix’s footsteps.
What’s more, Amazon and Time Warner have an existing relationship. The deal was inked in 2014 and includes content syndication, with Time Warner offering content to Amazon Prime users.
Apple has immensely popular devices, which might well be attractive to content providers like Time Warner. By buying Time Warner, Apple could easily launch its own video subscription streaming services. Recall that Apple was in talks with media companies last year but talks fell through.
In the end, there’s still value in the cable operators and their content. The most enticing value right now looks to be Time Warner stock. Time Warner has a solid balance sheet and trades at a discount to most media industry peers. When an activist shows up at Time Warner’s door, they’ll be looking to unlock the the value locked inside the company, which includes HBO.
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