• Home
• /
• Markets

Fox seen selling CNN rather than spinning off despite tax bill

Fox plans to get rid of CNN because it already operates its own namesake news network and would likely face opposition from regulators even if it wanted to keep it.

If Twenty-First Century Fox succeeds in buying Time Warner, it’s likely to sell CNN and pay billions of dollars in taxes rather than go through the headaches of spinning the cable news channel off to shareholders of the merged company, according to people familiar with the matter.

Fox plans to get rid of CNN because it already operates its own namesake news network and would likely face opposition from regulators even if it wanted to keep it. Potential buyers include CBS and Walt Disney’s ABC — two broadcast news juggernauts in search of a cable news outlet.

A sale would mean a tax hit of about 40 per cent of the proceeds, which could range between $6 billion and $10 billion, according to tax experts and industry analysts. The entire sale price would be taxable because CNN is carried on Time Warner’s books at near-zero, people familiar with the company said.

“That’s an additional cost to the deal and that tax liability is going to reduce the amount they are able to pay to Time Warner shareholders,” said corporate tax and accounting analyst Robert Willens, referring to Fox. The 40 per cent figure comes from a combination of federal, state and local taxes, Willens said.

Fox isn’t considering spinning off CNN, a structure that’s popular with media companies when there is a dearth of buyers, according to people familiar with the matter. Time Warner recently cleaved off its magazine division Time Inc as a standalone public company after a possible merger with Meredith Corp fell through. Tribune Co also plans to spin off its newspaper assets from its faster-growing broadcast division next month.

Fox would likely face tax consequences in a spin-off as well, a person familiar with the situation said. CNN would have difficulties as a standalone company because, unwound from a cable bundle, it would likely see its subscriber fees plummet, according to people familiar with the matter. CNN makes money from advertising sales and by charging cable companies to carry the channel.

Fox itself estimates that CNN would fetch about $6 billion to $7 billion in a sale, according to a person familiar with the matter. That would represent a low double-digit multiple of CNN’s estimated annual earnings before interest, tax, depreciation and amortisation of roughly $500 million, the person added.