"Additionally, the reaction in our share price since our proposal was made undervalues our stock and makes the transaction unattractive to Fox shareholders.
"These factors, coupled with our commitment to be both disciplined in our approach to the combination and focused on delivering value for the Fox shareholders, has led us to withdraw our offer."
Fox's shares jumped 7.3pc in after-hours trading on Tuesday, hitting $33.30. Time Warner's dropped more than 12pc to $75.59.
The Fox board has also authorised a $6bn share repurchase programme, which will be completed over the next 12 months.
Mr Murdoch added: “This significant return of capital underscores the Company’s ongoing commitment to disciplined capital allocation and returning value to shareholders in a meaningful way."
Time Warner, owner of the film studio Warner Brothers and the pay-TV channel HBO, which specialises in big budget drama serials such as Game of Thrones, revealed on July 16 that 21st Century Fox had offered $80bn in a mixture of cash and stock to aquire the rival company.
Mr Murdoch believed that with revenues of $65bn the combined company would be better able to stand toe-to-toe in distribution negotiations with tech giant such as Apple and Google, and with rapidly consolidating cable and satellite distributors.
Jeff Bewkes, Time Warner’s chief executive, said after rejecting the offer: “The board, after consulting with our financial and legal advisors, determined that it is not in the best interests of Time Warner or our shareholders to accept the proposal or to pursue any discussions with Fox.
“Quite simply, the board concluded that continuing to execute our strategic plan and our business plans will create significantly more value for our business and shareholders, and that that’s superior to any proposal that Fox is in a position to offer.”
On top of its belief in its value as an independent media company, Time Warner said it had concerns that Fox would not be able to properly manage the size and scale of the combination that would be created.
It also noted that the Fox shares offered as part of the bid were non-voting, meaning that the Murdoch family, which owns Fox voting shares, would control the merged company. The two-tier share structure has been controversial as non-voting shareholders have questioned decisions such as the appointments of Mr Murdoch’s sons James and Lachlan to senior executive positions.
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