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Fox’s Sky takeover bid stalled

21st Century Fox has suffered a setback in its proposed takeover of European media giant Sky following an investigation by UK media regulator Ofcom.

Rupert Murdoch

Sky agreed to sell the remaining 61% of its business not owned by Fox late last year, after a previous attempt was aborted in 2011 by executive co-chairman Rupert Murdoch following the phone-hacking scandal that hit his UK newspaper empire.

Culture secretary Karen Bradley referred the £11.7bn (US$15bn) deal to Ofcom to investigate potential public interest concerns in March, and the subsequent report was delayed following the UK general election.

Ofcom filed its report, which runs to more than 100 pages, to the Department for Culture, Media and Sport on June 20 and the government has now agreed with its conclusions.

Bradley said she is “minded to” refer the proposed deal to the Competition and Markets Authority for a ‘phase two’ inquiry due to concerns about the effect the merger could have on media plurality.

Fox has also proposed some undertakings to Ofcom, including setting up a separate editorial board for Sky News and retaining the news division’s current funding levels for five years.

While Ofcom said the remedies would mitigate the plurality risk, Bradley said she was not inclined to accept the changes. Fox and Sky now have until July 14 to propose further amendments and potentially avoid the competition enquiry.

Ofcom has also confirmed that Sky and Fox would be ‘fit and proper’ holders of broadcast licences. In its report, the media regulator said it had “concluded that the overall evidence available to date does not provide a reasonable basis for Ofcom to conclude that, if Sky were 100% owned and controlled by Fox, it would not be a fit and proper holder of broadcast licences.”

Fox said it was “disappointed” that Bradley had not accepted the proposed changes to deal with the media plurality concerns and said that if the competition enquiry goes ahead it expects the deal to be closed by June 30 next year.

That would prompt Fox to pay a special 10p dividend to shareholders, totalling around £172m. If the company walks away from the deal it has agreed to pay a £200m break fee.

In its statement, Sky added that it would “continue to engage with the process” ahead of Bradley’s final decision in two weeks.

Opposition to the takeover came from figures including Tom Watson, the shadow culture secretary, who urged the government to refer the deal to regulators “to assess whether it would result in too much media power being concentrated in too few hands, and whether Rupert and James Murdoch are fit and proper persons to run a broadcaster.”

The takeover plan had already received the green light from the European Commission’s competition authorities, which said its market investigation had found the proposed transaction “would raise no competition concerns,” and from media watchdogs in Ireland.

UK media regulators focused their concerns on Fox’s intentions to maintain broadcasting standards and the effect it would have on the UK’s media plurality. It also explored the company’s corporate governance, and particularly on James Murdoch, who oversees 21st Century Fox and has served as Sky chairman since January.

He previously worked across the parent company’s newspaper interests but has lacked widespread shareholder support at Sky of late, requiring Fox support to return him to his position in October.

The report’s timing was unfortunate for the US company, as it coincided with details emerging of sexual harassment at its US cablenet Fox News.

Those allegations saw Fox News veterans Roger Ailes, who died earlier this year, and host Bill O’Reilly leave the company. Around US$13m was reportedly paid to five women to settle their complaints over O’Reilly’s alleged behaviour.

The deal could hand Murdoch full control of Sky, which is already the largest pay TV operation in Europe, as well as the UK newspapers that come under his News Corp outfit, including The Times, The Sunday Times and The Sun.

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