Rupert Murdoch and his News Corp media powerhouse often buys other firms at the peak in the stock market. In addition, the last time Time Warner made serious M&A news was also at a peak. Does the combination of Murdoch trying to buy Time Warner signal a stock market apocalypse?
Time Warner’s debacle was merging with AOL in early 2000. AOL purchased Time Warner for $164 billion and the new firm became AOL Time Warner. The AOL side of the firm was distressed during the ensuing Internet bubble burst. The firm eventually changed its name back to Time Warner.
Also in 2000, Rupert Murdoch acquired Chris Craft Industries for over $5 billion. Then in July of 2007, he bought the Dow Jones & Company (think Wall Street Journal) for $5 million.
The figure shows the level of the S&P 500 Index after each of these buyouts. In all three cases the stock market had serious declines.
Here we are again. Rupert Murdoch’s new bid of $80 billion for Time Warner was rejected. But some sort of deal could still happen. In apocalypse vernacular, would it be the fourth horseman?
From a behavioral perspective, investors tend to be quite optimistic after long bull markets and tend to overvalue firms, which is common in M&A activity, just in time for a correction.