Time Warner's Earnings Results Justify Its Rejection Of Murdoch

For now at least.

Adrees Latif / Reutersd

Yesterday, Time Warner thanked investors for their support and told them it didn't need to merge with Rupert Murdoch's 21st Century Fox because it was "well positioned for success."

Today it reported second quarter earnings that suggest that view may indeed be justified.

The company, which owns cable networks TNT, TBS, CNN, and HBO, as well as the Warner Bros film studio, reported a 3% gain in revenue to $6.8 billion. Net income beat analyst expectations, coming in at 98 cents per share versus 84 cents per share in the same quarter last year.

The earnings report follows Murdoch's surprise decision yesterday to withdraw his company's unsolicited bid to acquire Time Warner for $85 per share, a proposal originally valued at around $80 billion. Murdoch cited Time Warner's unwillingness to engage in negotiations in part for his walking away.

Time Warner stock, which had been trading above the $85 per share price offered by Fox the last few weeks, fell more than 10%, or just under $9, to around $76.40 per share in after hours trading yesterday on the news. The decline shaved around $7.2 billion off of Time Warner's overall worth. The stock remained at that level in pre-market trading Wednesday morning.

Growth in subscription fees at HBO and its Turner Networks, which had been a sore spot in the past, drove earnings. HBO grew revenue 17% to $1.4 billion, with part of that increase coming from its deal to license The Sopranos, Six Feet Under and other shows to Amazon in April. Revenue at Turner increased 5% to $2.8 billion.

Time Warner also said that it would increase its share buyback program by $5 billion, a move further designed to placate investors from pressuring the company to engage in deal negotiations. The company said it has already returned more than $4 billion to shareholders this year in the form of buybacks and dividends. Murdoch, for his part, did the same yesterday, announcing that Fox's board authorized a $6 billion share buyback program to be completed over the next year.

Time Warner cited reasons ranging from its mix of cash and stock to voting control to its own strategic growth plan as reasons for rejecting Fox's offer. Investors will be looking for Bewkes to outline a strategic plan designed to get its share price above the $85 mark on its earnings conference call scheduled for later this morning.

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