Rupert Murdoch faces drawn-out negotiations with U.K. regulators in his effort to take full control of Sky for 11.7 billion pounds ($15.2 billion) after the government said it intended to refer the bid back for additional review unless 21st Century Fox offers steeper concessions.
The U.K. is inclined to refer the offer to the Competition and Markets Authority for a deeper investigation, Culture Secretary Karen Bradley said Thursday. However, she left the door open for a resolution by July 14 that would avoid a CMA review, if Fox strengthens proposals it's made to ensure editorial independence at Sky News.
"The transaction raises public-interest concerns as a result of the risk of increased influence by members of the Murdoch family trust over the U.K. news agenda and the political process, with its unique presence on radio, television, in print and online," Bradley said in a statement to the House of Commons.
Sky, which describes itself as Europe's leading entertainment and telecom business, offers TV, broadband internet and telephone services to 22 million customers.
While the onus is on Murdoch to resolve the government's concerns, investors drove Sky shares up, quickly concluding that Bradley raised no fundamental issues that would preclude the 86-year-old billionaire's attempt to create a trans-Atlantic media and entertainment giant. While sexual-harassment allegations at Fox News in the U.S. demonstrated significant corporate-governance failures, she said she wasn't inclined to ask the CMA to look into the deal's impact on broadcast standards.
Communications regulator Ofcom echoed her findings, saying Sky would remain a fit-and-proper owner of media assets under Fox, a key test that could have sunk the deal outright.
"It's taken the worst-case scenario off the table," said Neil Campling, an analyst at Northern Trust Capital Markets. "The balance of probability is now that it's more likely that the deal goes through."
Or is it?
An in-depth review by the CMA would last up to six months, potentially pushing completion of a deal past a year-end deadline that would trigger a costly Fox payout. If the deal isn't completed by Dec. 31, Fox is obligated to pay Sky shareholders a dividend of 10 pence per share. The payout would total more than 170 million pounds, based on the number of shares outstanding.
A CMA referral could also subject Fox's bid to broader political tumult. The final decision would rest with Bradley, a member of Prime Minister Theresa May's Conservative Party.
While the Tories are seen as more likely to approve the bid than Labour Party politicians who have generally voiced opposition to Murdoch's plans, May's grasp on power was weakened in a snap election this month that left her without a majority and required her to forge an alliance with Northern Ireland's Democratic Unionist Party.
"We live in very unstable political times. There is no meaningful parliamentary majority for the Tories," said Alex DeGroote, an analyst at Cenkos Securities. "This becomes even more of a political hot potato now than it was before the election. I think the probability of the deal completing is fractionally lower."
Representatives of Sky and Fox, which now owns 39% of its intended target, didn't immediately respond to a request for comment.
The referral process is not new to billionaire Murdoch: Ofcom recommended further investigation by regulators of his previous effort to acquire Sky in 2010, a bid which later collapsed amid a phone-hacking scandal at his newspapers. Then, Murdoch's News Corp. offered to spin off Sky News as an independent public limited company in lieu of the bid being referred.
Opponents of the deal criticized Bradley. Hacked Off, an advocacy group that's continued to press for scrutiny of the Murdochs, said Bradley "should not waste time on 'undertakings,"' or remedies that the Murdochs offer because they're "not worth the paper they are written on," pointing to Murdochs' takeover of the Times newspaper more than three decades ago.
Avaaz, a campaigning group that has been opposed to further concentration of media influence under Murdoch-controlled companies, went further.
"Karen Bradley should make this decision based on what's best for British people, not Rupert Murdoch," said Alex Wilks, campaign director at Avaaz. "If the government green lights the deal based on more empty Murdoch promises, we'll look hard at legal challenges to protect our democracy."
Taking control of Sky would give New York-based Fox a powerful distribution platform in Europe for pay television and internet, to complement its film studio and cable channels like FX and National Geographic. Sky provides satellite-TV service to 21.8 million customers across the U.K., Ireland, Italy, Germany and Austria.
-- Bloomberg News