Could Fox end up making CNN an orphan? A move by Rupert Murdoch on Time Warner may leave the cable news channel on the auction block as part of a media acquisition that would vastly increase Murdoch’s reach — or potentially weaken it, depending on the terms of the deal:

The media giant 21st Century Fox, the empire run by Rupert Murdoch, made an $80 billion takeover bid in recent weeks forTime Warner Inc. but was rebuffed, people briefed on the matter said on Wednesday.

The bold approach could put Time Warner in play and might again ignite a reshaping of the media industry, prompting a new spate of mega-mergers among the nation’s largest entertainment companies.

The news of the offer, the NYT’s Andrew Ross Sorkin and Michael de la Merced explain, might prompt more interest among shareholders of Time Warner than its board. So far, Murdoch hasn’t launched a hostile takeover attempt, but his track record suggests he’s not shy about doing so. The deal for shareholders looked pretty good on paper, with a 25% premium over current trading price, and that’s definitely going to interest at least some of their shareholders.

The problem with the deal, though, is in the structure of the offer and the different structures of the two corporations. Time Warner’s voting stock is widely held, while Fox’s voting stock is closely held within the Murdoch family. The bid would have been 60% stock based, but non-voting stock, which the Time Warner board rejected. That would mean that current large stockholders in Time Warner would lose a significant amount of leverage in the acquisition, and with it the power to protect their investment, other than the power of voting with one’s feet by selling their shares.

If Murdoch wants to sweeten the deal for either a hostile takeover or a friendly acquisition, he’ll probably have to bump up the cash ratio significantly or loosen up some of the voting stock. He may not be able to do the latter without leveraging the deal, which will mean relinquishing some control, and the former means the same outcome, only to different people and more permanently. On the plus side, Sorkin and de la Merced point out that 70% of shareholders in Time Warner are also shareholders in Fox, which means that they may be more amenable to the current stock structure remaining in place, but they’ll likely want more than 40% of the sale in cash anyway.

If the sale goes through, what happens to CNN? After all, there’s no way that regulators will allow one corporation to own the top two cable news networks. Fox planned for that contingency, and there isn’t a lack of potential buyers:

As part of the proposal to buy Time Warner, people briefed on the proposal said, 21st Century Fox indicated that it would sell CNN to head off potential antitrust concerns since Fox News competes directly with CNN. Putting CNN on the auction block would likely stir up a bidding war for the news channel; both CBS and ABC, a unit of the Walt Disney Company, have long been viewed as interested suitors.

CBS’ parent is Viacom, which like Disney has plenty of resources for such an acquisition. Rumors of a CBS purchase have been around for more than a decade. Media Bistro reported in 2008 that CBS was in talks to buy CNN, and in February of this year the site FTV Live claimed to have heard rumors that a sale might be imminent. Nothing has come of these reports, and it may not this time either unless Murdoch works his magic on Time Warner.

By the way, that magic just got more expensive:

Time Warner shares rose 13% to US$80.40 in early New York trading. As part of the proposal, Fox indicated that it would sell CNN to ward off potential antitrust concerns since Fox News competes directly with CNN, New York Times said. Putting CNN on sale would probably lead to a bidding war for the news channel as CBS and ABC, a unit of the Walt Disney Co., have long been seen as interested suitors, the newspaper said.

That’s still below the premium of the original offer, but it raises the stakes for Murdoch if he wants to protect the voting stock in Fox.