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Time Warner taking hard stance on a bid by Fox

NEW YORK — Rupert Murdoch tends to finish what he starts. So from the moment the news broke last month that Time Warner Inc. had rejected an $80 billion bid by Murdoch’s 21st Century Fox, the assumption on Wall Street and in the media world was that it was only a matter of time before a deal was struck.

Since then, though, Time Warner has made it clear that it views Fox’s approach as a hostile takeover, and it has refused to negotiate with Fox.

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And so the mating ritual begins, as both sides engage in the gamesmanship that accompanies all high-level merger negotiations. But Time Warner’s unyielding stance has at least some analysts wondering if an acquisition really is inevitable.

“I think this deal is not going to be as simple as people first thought,” said Michael Nathanson, of MoffettNathanson, the research firm. “I think people underestimated the resolve of Time Warner’s management and its board.”

The jockeying will intensify after the two companies report their quarterly earnings to shareholders Wednesday, an ordinarily routine event that will be charged with uncharacteristic intrigue, as both companies will almost certainly be asked about their intentions toward each other.

In the coming weeks, their energy will be focused on winning the support of the large number of shareholders with big stakes in both companies. Time Warner’s chief executive, Jeffrey L. Bewkes, and his top executives will try to persuade these stockholders that the company is already poised for a period of rapid growth. It is a strategy that will theoretically work on two levels: convincing investors that Time Warner is positioned to succeed on its own, and signaling to Murdoch that he has grossly undervalued the company.

Hanging in the balance is the biggest media merger in a decade, one that would bring together the two largest movie and television studios in Hollywood and give Fox a live-sports portfolio that could rival that of ESPN.

Time Warner was involved in the industry’s last merger of this scale: Its disastrous combination with AOL during the peak of the dot-com bubble is seared into the company’s institutional memory and may even be informing its resistance to Fox’s offer.

This is a very different moment in media history. Size has become its own virtue, as entertainment companies scramble to keep pace with the consolidation among cable providers and to better position themselves to fight off content challenges from Silicon Valley.

As is invariably the case in takeover attempts, neither party wants to seem too eager for a union. In this context, it is impossible to know how much of Time Warner’s resolve is just a negotiating tactic.

“If the price if right, he’ll do the right thing for shareholders,” Rich Greenfield of BTIG Research said of Bewkes. “Price fixes everything.”

The question is what that price is. Fox’s initial offer valued the company at $85 a share. People familiar with Fox’s plans say a second bid would most likely be in the $90 to $95 range.

Some analysts have said that a deal would probably happen if Fox raised its offer to about $100. But it is not clear if even that would be enough to satisfy Time Warner’s management and board, who believe the stock could be trading near that level in 18 months — when a transaction might be approved — if the company remains independent. The challenge will be convincing shareholders of that.

Bewkes, 62, is under contract with Time Warner through 2017. His total compensation in fiscal 2013 was $32.5 million. He has a generous exit package: Fox’s initial offer would have netted him more than $95 million.

There is little question that Bewkes has the confidence of his board and the good will of investors: When he first took over the company in 2008, its shares traded as low as $14. But he lifted the stock price not by acquiring properties but by shedding them, making his company a natural takeover target. He could face skepticism from shareholders who want to know why the company’s ambitious growth plans are not already reflected in its stock price, which has risen considerably since Fox’s bid.

Time Warner is trying to stir up doubts about the prospects of a combined entity, underscoring the potential for regulatory concerns and playing up the possibility of a culture clash between the generally liberal, purely public Time Warner, and the conservative, essentially family-run Fox.

For its part, Fox has said that it does not expect the government to raise any substantive concerns about the merger. It has also said that its networks broadcast plenty of progressive programming, including “Glee” and reruns of the ABC show “Modern Family.”

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