21st Century Fox Rescinds Buyout Offer for Time Warner

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21st Century Fox Inc. (FOXA) has withdrawn its takeover offer for Time Warner Inc. (TWX).  Time Warner rejected the offer three weeks ago.  Since that time, FOXA shares have fallen approximately 11% in value.

On the heels of rescinding the takeover offer, 21st Century Fox announced an authorization to repurchase $6 billion of FOXA Class A shares.  The share buyback program should shore up the price of the stock, appeasing shareholders, and possibly attracting new investors.

I wrote about  this merger offer on July 16th under the title Time Warner Spurns 21st Century Fox Merger Offer.  There were two versions of the article that day:  one for subscribers, and one less detailed for website visitors.  (Obviously, I save my more valuable insights for the investors who pay an annual fee to read my daily articles.)

I correctly told investors exactly what to do with TWX and FOXA shares, including the following assessments and instructions:

• As is typical during buyout activity, shares of the purchasing company, FOXA, have fallen to recent price support around $33.50/$34 on today’s news.  The next support level is around $31.50.

• Buyouts are expensive — expect [FOXA] to stagnate as long as this potential purchase remains on its horizon.  Cautious shareholders are encouraged to use a stop-loss around $33, in case the shares fall further.

• Cautious shareholders are encouraged to use stop-loss orders [on TWX] to protect today’s profits from eroding, in the case that no purchase is agreed to in the coming weeks.

All of that advice was spot-on, and none of it required guesswork on my part.  If you would like to start receiving better stock investing recommendations, featuring both fundamental and technical analysis, please subscribe now to Goodfellow LLC.

 

How to Proceed with FOXA and TWX Shares

FOXA shares are tremendously overvalued.  Earnings per share are expected to grow 12.5% and 11.8% in 2014 & ’15.  Those are decent growth rates.  But the 2014 & ’15 price/earnings ratios (PE) are staggering in comparison, at 20.5 and 18.3.  Nothing could compel me to buy shares in 21st Century Fox.

On the flip side, there’s no reason to hurry and sell FOXA shares, either.  With the stock sitting at firm support levels, and a share repurchase plan in place, the stock price is unlikely to fall further.

If I owned FOXA shares, my plan would be to sell them after a small rebound to $32.50.  I would then reinvest my money into an undervalued growth stock with a bullish chart.

Goodfellow LLC Rating on FOXA:  Sell at $32.50, Public.  (08/05/14)

Scroll past FOXA chart for further discussion of TWX.

Chart courtesy of StockCharts.com.

 

Time Warner shares are likely to drop, now that the buyout offer has officially been rescinded.  The stock price could conceivably fall back down to $72.  I certainly hope that investors took my advice and used stop-loss orders to protect their profits.

TWX is not currently on my buy list, because EPS growth is projected to be quite slow this year, at 6.1%.  I would therefore not buy the stock at any price in the near future.

 

Chart courtesy of StockCharts.com.

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