UPDATE, writethru, with Fox response: Rupert Murdoch’s latest attempt to acquire the long-coveted remainder of pay-TV giant Sky still has some hurdles to clear. Speaking in the House of Commons today, UK Culture Secretary Karen Bradley said she was “minded” to refer 21st Century Fox’s bid to take full ownership of Sky to the Competition and Markets Authority after concerns over media plurality were raised by British regulator Ofcom. A CMA review can take up to six months. Fox has now responded to the findings (see full statement below).
The £11.7B ($14.6B) transaction would see Fox acquire the 61% share of Sky which it does not already own and was first mooted in December. Following Bradley’s comments today, Sky was up 3.4% on the London exchange. Fox was down 2.7% in pre-market New York trading.
Bradley’s decisions, which she stressed are not final, were seen as potentially the last hurdle for the asset, coming seven years after Murdoch first attempted to acquire the then-BSkyB before scrapping the deal during the phone-hacking scandal.
But today puts the Murdochs in familiar territory. The previous bid was challenged by Ofcom on the same grounds and at the time News Corp offered to spin off Sky News as an independent entity in lieu of a referral. A probe ultimately went ahead before the scandal tanked the deal entirely.
While Fox and the media landscape are very different from 2010 when the initial bid to acquire BSkyB was first attempted (21st Century Fox is a content-focused business that doesn’t own newspapers and is legally independent from the new(ish) News Corp), fast-forward to 2017 and Ofcom has again raised concerns over media plurality. Bradley confirmed today that Ofcom’s report is “unambiguous” on the point.
She read in part, “The transaction raises public interest concerns as a result of the risk of increased influence by members of the Murdoch Family Trust over the UK news agenda and the political process, with its unique presence on radio, television, in print and online. We consider that the plurality concerns may justify the Secretary of State making a reference to the Competition and Markets Authority.”
Bradley noted “these are clear grounds whereby a referral to a Phase 2 investigation is warranted — so that is what I am minded to do.” However, she has given the parties the opportunity to make representations on the position before reaching a final decision. They have until July 14 to respond.
In more positive news for the Murdochs, Ofcom was unequivocal in its findings that a merged Fox and Sky would have a genuine commitment to broadcasting standards. In light of the companies’ “broadcast compliance records… we do not consider that the merged entity would lack a genuine commitment to the attainment of broadcasting standards. Therefore, we consider that there are no broadcasting standards concerns that may justify a reference by the Secretary of State to the Competition and Markets Authority.”
Ofcom further has an ongoing duty to be satisfied that the broadcast licenses are granted only to those “fit and proper” to hold them. The authority said today that if Sky were 100% owned by Fox, it would retain its fit and proper status.
That’s despite “significant failings of the corporate culture at Fox News,” Ofcom said referencing the “extremely serious and disturbing” allegations of sexual and racial harassment at Fox News. But, “in order to have a concern about fitness and properness, we would need to see evidence of misconduct in the parent company, Fox. However, we have no clear evidence that senior executives at Fox were aware of misconduct before it was escalated to them in July 2016, after which action was taken.”
The Murdochs have also been down the fit and proper path before. In 2011, after the phone-hacking scandal forced then-News Corp to scrap its BSkyB bid, Ofcom started a probe into whether James Murdoch (who was BSkyB Chairman) and News Corp were fit and proper to own a broadcast license. Ultimately, Sky passed the test but Ofcom was critical of the younger Murdoch who had by that time stepped down as chairman of BSkyB. He’s now been Chairman of Sky for about 18 months.
In another revelation today, Bradley said “undertakings in lieu” were proposed to Ofcom by the parties before it concluded its report. The proposed UILs centered around Fox maintaining the editorial independence of Sky News and a commitment to maintain Sky branded news for five years with spending at least at similar levels to now. While Ofcom took the view that the remedies would mitigate the media plurality public interest concerns, Bradley said she was inclined not to accept them.
The deal had already been okayed on public interest grounds by authorities in all of the markets in which Sky operates outside of the UK. It also won support from all competent competition authorities, notably the European Commission and the Jersey competition authority.
Sky said this past December it had reached a deal with Fox for the remaining stake on an offer price for £10.75 per share in cash.
Here’s Fox’s statement:
“21st Century Fox (21CF) notes today’s announcement by the Secretary of State for Culture, Media and Sport that she is minded to refer its proposed acquisition of Sky to the Competition and Markets Authority (CMA) for a phase two review in respect of the media plurality ground. We are pleased that she is minded not to refer to the CMA in respect of the commitment to broadcasting standards.
“While we welcome the Secretary of State’s decision on broadcasting standards, we are disappointed that she does not accept Ofcom’s recommendation stated in its report that ‘…the proposed undertakings offered by Fox to maintain the editorial independence of Sky News mitigate the media plurality concerns.’
“Separately, 21CF is pleased that Ofcom recognizes that Sky, under full 21CF ownership, would remain a fit and proper holder of broadcast licenses.
21CF will now make representations to the Secretary of State regarding her provisional decision and Ofcom’s report, and will continue to work constructively with the UK authorities. In the event that the Secretary of State makes a final decision to refer to the CMA, we would expect that the review would take at least 24 weeks. In such an event, the transaction is expected to close by June 30, 2018.”