Time Warner Inc (NYSE:TWX) confirmed on Wednesday that it had rejected an increased offer from Twenty-First Century Fox Inc (NASDAQ:FOXA), and analysts are weighing in. Both Bernstein and Morgan Stanley think a merger would be good for both companies, although not everyone agrees. They see cost synergies that could explain why Rupert Murdoch’s company is pursuing Time Warner so avidly.

Time Warner Inc

Time Warner + Twenty-First Century Fox = $2 billion synergy

In a report dated July 17, 2014, Bernstein analysts Todd Juenger, Dave Beckel and Julia Zheng say a merger between Time Warner and Fox makes strategic sense because. They believe the combined company would be more valuable over time, compared to what each of them could do on their own. They add that it would make sense for other media companies to merge as well.

The analysts say Wall Street expects Fox to bid “significantly more” than $85 per share in order to attract Time Warner. They see a likely earnings per share accretion of $85 at Fox, but if shares shot up to $100, it would become dilutive very quickly, especially because Fox’s slumping share price on Wednesday.

Nonetheless, they think it’s “absurd” that the two companies would only see synergies of about 2% of their combined operations. They say even using the $100 a share offer but adding in $2 billion worth of cost synergies, the result is “only mildly dilutive.” They believe that “when” Fox raises its offer again, the company will estimate a higher cost synergy.

Analysts see more media mergers ahead

In a report dated July 16, 2014, Morgan Stanley analyst Benjamin Swinburne and his team said Fox’s offer for Time Warner supports their bullish view of both Time Warner and the media industry. They think Time Warner “offers a unique portfolio of global content assets with predictable growth at a reasonable price” and that it’s Fox’s best choice as the media industry continues to consolidate.

The Bernstein team agrees and offers a list of possible mergers if the Time Warner / Fox deal goes through. For example, they say CBS Corporation (NYSE:CBS) could merge with Viacom, Inc. (NASDAQ:VIAB) and possibly acquire AMC Networks Inc (NASDAQ:AMCX). They think The Walt Disney Company (NYSE:DIS) could acquire Discovery Communications Inc. (NASDAQ:DISCA), thus leaving Scripps Networks, Interactive, Inc. (NYSE:SNI) without a partner. They think it will be difficult for Time Warner to convince shareholders that it is better staying separate from Fox.

If the merger doesn’t go through, they think Time Warner could merge with CBS and Fox could acquire Discovery Communications or Viacom. In this case, they say AMC Networks, Scripps Networks and Viacom would be left as wild cards and might all get together.

Shares of Time Warner shot up by 14% yesterday, while Twenty-First Century Fox slumped by more than 6%.