Time Warner/CNN: Running Scared

A little more than a month ago Rupert Murdoch offered Jeff Bewkes $80 billion for Time Warner. As I write this, Time Warner's current market cap is $65.73 billion. Three weeks ago, Bewkes turned down Murdoch's offer. When the offer was made Time Warner stock was about $71 per share. After the offer, the stock rose to over $87 a share. Currently it's valued at $77.07 per share, an improvement, but today's stock price reflects a market cap about 20 percent under Murdoch's offer.

So what is Bewkes doing about it? So far as I can see, when it comes to Turner Broadcasting, he's cutting staff and trying to raise profits simultaneously. He's offered to buy out 600 Turner employees, just to get them off the pay roll. The offer reads like a form letter:

To support the company's stated focus on programming, monetization and innovation, we are identifying cost savings and shifting capital allocations to high-growth areas where investment will drive growth and profitability. As part of these efforts, we are offering a Voluntary Separation Program to regular status Turner Broadcasting employees on Turner's U.S. payroll working in the U.S. and who are at least age 55 and have 10 or more years of service as of December 31, 2014, excluding on-air talent and employees covered by a written employment agreement... Given the current focus on reducing costs and prioritizing investments to maximize company performance, Turner will also undertake additional reductions in staffing. In short, the cuts are already underway and more are coming.

When Time Warner rebuffed Fox's bid, it insisted that it had a brighter financial future on its own. The Journal-Constitution writes "Those assurances increase the pressure on Time Warner, and Turner, to pump up profits something cuts could do, at least temporarily and boost share prices." It also quotes John Martin, the CEO of Turner, as saying there is "a need for Turner to put more money into programming, particularly in original productions, rather than acquiring reruns", but the paper adds that "that isn't a fast way to build profits."

So Turner is taking other steps: reportedly shopping its Headline News division to Glenn Beck and to Vice, a documentary TV series created by Shane Smith, the editor of Vice magazine, currently being carried by HBO. I have my doubts. Headline News reaches almost 100 million homes. Two years ago, Al Jazeera reportedly paid $500 million for Current TV's 40 million homes. At that rate, Headline News would be worth $1.25 billion. On the other hand, CNN would be reducing its reach by 100 million homes and I think 100 million homes would be worth far more than that to any potential news rival. And I question whether CNN would be happy to have another rival.

Bewkes and Martin seem to be following the traditional trail of MBAs -- cut costs, put lipstick on the pig, dress it up and sell it for as much money as you can get and let the buyer worry about the future. I think Bewkes and Martin are running scared.

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