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Time Inc Case

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Time Inc. Entry into the Entertainment Industry

Equipo 4
Cecilia Quijano
Karla Rodriguez
Cristina Mayorga

Suggested Questions
1.- How attractive is the merger of Time with Warner?
a) What are the value enhancement opportunities?
b) Is the proposed exchange ratio of 0.465 per Warner share attractive? Is Time Paying the right price for Warner?
c) Does the merger make sense strategically?

La fusión de time con Warner ofrecía una amplia gama de posibilidades de mejora para ambas empresas. Time tendría una mayor capacidad financiera y conseguiría entrar a mercados en los que anteriormente no participaba; mientras que Warner podía expandir su capacidad y su presencia internacional.
Comparando el valor de las empresas antes y después del anuncio de fusión, se obtiene que la sinergia tiene un valor de alrededor de $331.
El intercambio propuesto de .465 por acción de Warner nos da como resultado que la nueva empresa tiene 139.9 acciones de las cuales Times es dueño del 41% y Warner del 59% restante.
Esto tiene como resultado que el día anterior al anuncio de fusión (3 de marzo) la empresa fusionada tiene un valor de $15,266.59. Esto es $866.95 por encima del valor de ambas empresas si decidieran no fusionarse. También apreciamos que un día después del anuncio (4 de marzo) el valor es de $15,039.25, con una sinergia de $308.78.
Otro dato relevante para nuestra valuación es que después de la fusión (6 de Junio) la empresa ya fusionada tiene un valor de $17,627.40 y una sinergia de $798.40. este valor tiene un aumento con respecto a los pasados (cuando se anuncia la fusión) debido al intento que Paramount hace para hacer una “hostile takeover”.
Con base a estos datos, Time va a pagar un premio de 10% por cada acción de Warner.
Para saber si era conveniente para Warner la compra de Time, descontamos los flujos de efectivo con una WACC que obtuvimos de 16.5%. Esto nos dio un valor de $4616.54, un valor que está muy cerca del precio que Time pagó por Warner.
Esto nos lleva a concluir que la fusión de estas empresas tendría ventajas para ambas. La fusión no solo les daría la oportunidad de acaparar una porción más grande de mercado y eliminar a competidores, sino que al unirse podrían reducir costos. Otra ventaja que la fusión tiene para estas empresas es que Time entraría al mercado del video, uno que estaba creciendo exponencialmente en la época y que le permitiría seguir siendo una fuente relevante en el mundo del entretenimiento y la información.
2.- What prompted Paramount’s interest in Time? Should Paramount be worried? Why is it bidding? How much in excess Paramount is offering compared to the Time Warner merger deal?
Time publicaba revistas y libros, distribuía programación de televisión por cable y operaba franquicias de televisión local. Time era una empresa grande en el ramo de la comunicación que, al fusionarse con Warner, abarcaría la mayor parte del mercado no sólo de distribución de la información, sino del entretenimiento; dejando a empresas como Paramount sin oportunidad de competir.
Time- Warner haría películas, programas de televisión, libros, revistas y podría vender cualquiera de estas cosas alrededor del mundo, dada la alta demanda de estos servicios, alcanzando un crecimiento exponencial; mientras que la participación de Paramount en el mercado de las comunicaciones, disminuiría con el paso del tiempo. Paramount quedaría rezagada y para protegerse, decidió hacer una oferta hostil a Time.
Davis, el CEO de Paramount, vio una grandiosa oportunidad en cualquiera de los dos escenarios. Si Time aceptaba la oferta, lograría ganar o mantener su participación en el mercado y si Time la rechazaba, por lo menos lograría que Time y Warner cambiaran la forma de su fusión (libre de impuestos) dejando a la nueva empresa con más deuda y haciéndola menos competitiva.
Davis sabía que era muy probable que los accionistas de Time quisieran aceptar su oferta, debido a que ésta era en efectivo. Davis también sabía que la fusión de Time-Warner necesitaba la aprobación de todos los accionistas y dado que estos preferirían el efectivo, si Munro quería llevar acabo la fusión con Warner, tendría que optar por otra opción que no involucrara las preferencias de los accionistas. La única forma era comprar a Warner con efectivo o con efectivo y acciones, que requerían el apalancamiento de Time para poder adquirirla.
En este sentido, Paramount había planeado muy bien su estrategia y no tenía por qué preocuparse. Sin embargo, si Time y Warner se fusionaban, no dejarían de ser la empresa más grande en el ámbito de las comunicaciones y redes de cable, convirtiéndola en un rival prácticamente inalcanzable.
El que Paramount hiciera una oferta del 60% mayor al precio real de las acciones de Time, no es suficiente para decir que el negocio que Time-Paramount iba a ser más rentable que el de Time-Warner. Al contrario, al aceptar la oferta de Paramount, dado que los activos de ambas empresas no eran complementarios, Time no iba a lograr el mismo impacto que si se fusionaba con Warner.
3.- What legal, financial, and restructuring options does Time have to combat the Paramount bid? To ensure that it is not a target in the future?
Desde un principio, Paramount no encajaba en la estrategia de largo plazo de Time. Sin embargo, para Paramount, Time sí fue una parte crucial para su estrategia de largo plazo.
Paramount se encontraba en el proceso de rehacerse a sí misma como una compañía de entretenimiento y medios de comunicación globales, esto no era otra cosa que la transformación de la antigua Gulf and Western en un conglomerado de medios.
En su momento, la administración de Time pensó que una integración vertical única en el contenido de entretenimiento, proporcionaría un mayor impulso para obtener un crecimiento más rápido y, así, convertir a Time en un verdadero conglomerado de medios.
Antes de la votación de los accionistas, Paramount ofreció a comprar todas las acciones de Time por $175 por acción. Sin embargo, los directores consideraron la mejor oferta a largo plazo era la de fusionarse con Warner que conseguir ser comprados por Paramount.
Paramount lanza una oferta en efectivo por Time de $175 por acción. El precio de acción de Time subió desde $44 a $170 por acción, el precio de acción de Paramount subió desde $ 0.75 a $54.75. Su oferta pública de adquisición sobre la terminación sobre la fusión Time Warner y el acuerdo de intercambio de acciones están condicionados.
La oferta de Paramount está condicionado por el número mínimo de acciones ofrecidas; permitir que el acuerdo estará sujeto a aprobación de los accionistas, en donde Paramount controla un número suficiente de acciones para negar dicha aprobación; terminación o nulidad de intercambio de acciones sin incurrir en pasivos de Time y la transferencia puede ser largo, Paramount estableció un fideicomiso de voto para tener acciones de Time hasta que se terminó.
Las razones de la oferta de Paramount son:
-Preservar su imperio, fueron golpeados con otros competidores para detener el acuerdo de fusión Time Warner.
-No permite Time para ganar la fusión con el precio barato sin ninguna deuda o impuesto de pasivos, quiso ensillar la empresa con una deuda para que sea menos competitiva y hacer que su precio baje por lo que la oferta más alta por Paramount resultaría más atractivo.
Time ve la oferta de Paramount como la ganancia de corto plazo, debido a que ésta era en efectivo; sin embargo, Paramount no era un buen partido en el ámbito de su diversificación en los campos de la industri. Pero para descontar el acuerdo de Paramount y justificar ante sus accionistas de Time requerida para obtener una tasa de más de 12%. La tasa de descuento es 12%, Time Warner habría sido capaz de alcanzar un precio por acción de $200 sólo después de 7 años y medio
El camino de la oferta de Paramount de $200, podría tomar fácilmente Time Warner más de 7 años de sinergia combinada. Aunque Time nunca he querido ser adquirida.
También toma en cuenta, es cómodo aceptar la oferta de Paramount si supera el valor combinado de Time y Warner.
Sin embargo, las sinergias realizadas durante un largo plazo han demostrado ser mucho más alto.
4.- What would you do as Mr. Munro? How would you explain a decision to reject the Paramount offer at the annual shareholders’ meeting?
Consideramos que las razones para rechazar la oferta de Paramount radican, principalmente, en las razones por las cuales es mejor opción hacer un trato con Warner. Las ventajas de realizar un negocio con esta última empresa, son mayores que las de realizarlo con Paramount dado que los activos que ambas empresas (Time y Warner) eran complementarios y encajaban mejor con la visión de Munro. Al tener activos complementarios, la fusión con Warner, brindaría una mayor expectativa de crecimiento y de captación de mercado.
Una de las razones por las que se tendría que decidir por un trato con Warner es que Time no poseía los derechos de autor de ninguno de los materiales que podía distribuir y, puesto que, cuando una revista, filme o libro es producido, distribuido y vendido; los poseedores de los derechos de autor, pueden obtener beneficios, era muy necesario poseerlos. Con sus operaciones de cable y televisión de paga, Time poseía canales de distribución de información y entretenimiento, pero no poseía ningún material para distribuir. Esto encajaba perfectamente con Warner, cuyo mayor activo era la elaboración de todo este tipo de contenidos. Las utilidades de Paramount, por otra parte, provenían en su mayoría de subsidiaria financiera que no encajaba con la estrategia de Time. Dada la estrategia y visión que el CEO de Time quería seguir, no convenía aceptar un trato con Paramount.

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