U.K. regulators dealt a setback to 21st Century Fox's planned 11.7 billion-pound ($16.3 billion) takeover of Sky, saying the deal would give Rupert Murdoch too much control over the country's media.
Fox's bid to buy the European pay-TV broadcaster wouldn't be in the public interest, the Competition and Markets Authority said in provisional findings Tuesday in which it called for the companies to offer remedies. Sky shares jumped as much 3.7 percent, however, after the regulator dismissed concerns about the separate issue of broadcasting standards.
While the decision is another impediment for the Murdochs, the lack of concern over broadcasting standards was welcomed by Fox after myriad regulatory delays and a furor over sexual harassment allegations at Fox News in the U.S. With a 39.1 percent stake in Sky, Fox has agreed to sell the London-based broadcaster on to Walt Disney Co. as part of a a $52.4 billion merger revealed last month. If the Fox-Sky deal isn't completed, Disney will only pick up Fox's existing holding in Sky.
Broadcasting standards would "probably have been the harder of the two parts for Fox to provide sufficient remedies," Liberum media analyst Ian Whittaker wrote in a note to clients. "Fox will now presumably propose disposing of, in one form or another, Sky News."
Now the Murdoch family faces negotiations with antitrust officials and politicians to get the Sky deal through, with the aim of ultimately selling the company on to Disney. Any concessions could include divesting Sky News or insulating the channel from Murdoch's influence, the CMA said. Fox said in a separate statement that it was disappointed with the CMA's findings on media plurality.
"We will continue to engage with the CMA ahead of the publication of the final report in May," Fox said.
The CMA rebuke to Murdoch comes even though Sky is likely to be absorbed by Disney as part of the U.S. company's own transaction within months of the completion of the Fox deal. But the regulators said that they couldn't take the second merger into account.
Any antitrust review of the Disney deal "is unlikely to be completed until well after our inquiry has concluded," the CMA said. "It is therefore uncertain whether, when or how the Disney transaction will be completed."
In a boost for Fox, the regulator cleared the transaction on the grounds of the company's commitment to broadcasting standards, an issue that had been a key concern for investors. The CMA said allegations of sexual harassment against Fox News employees in the U.S. were serious, but were not directly related to Fox's broadcasting record.
Sky's shares rose 2.2 percent to 1,025.5 pence at 12:14 p.m. in London.
Not a 'deal breaker'
An adverse ruling on broadcasting standards would have been a "complete deal breaker," Mirabaud analyst Neil Campling said in an emailed comment. The CMA's positive view on that issue is the most important finding in the statement, he said.
Fox and Sky can discuss possible remedies with the CMA before the regulator delivers its ultimate verdict on the deal to Culture Secretary Matt Hancock by May 1. Hancock has the final say on whether to clear the merger.
In a previous review by communications watchdog Ofcom, Fox offered to create an independent editorial board for Sky News to address concerns over Murdoch's media influence. Ofcom said the offer mitigated its concerns, though the proposal could be strengthened.
The CMA is inviting submissions on that proposal, plus other possible remedies such as a sale of Sky News, or blocking the transaction altogether. Sky said that it will look at possible remedies to address the CMA's issues.
"Media plurality goes to the heart of our democratic process," said Anne Lambert, chair of the CMA investigation group. "It is very important that no group or individual should have too much control of our news media or too much power to affect the political agenda."
Opponents of the Fox-Sky deal cheered the CMA's ruling on media plurality and called for the bid to be blocked.
"This announcement is a victory for the thousands of people who joined the campaign and forced the government and the regulator to stand up to the Murdochs," said Tom Watson, deputy leader of the opposition Labour Party and a long-standing critic of the Murdochs, adding he hopes that the ruling puts an end to the bid.
-- Bloomberg News