Murdoch’s fresh bid for Sky draws political fire

Television set

13 December 2016. By Dafydd Nelson.

Rupert Murdoch is once again making a play for full control of British pay-television operator Sky, hoping the political winds have shifted since his last approach five years ago blew up amid a phone-hacking scandal.

Twenty-First Century Fox is unlikely to meet serious opposition to the 11 billion pound ($14 billion) offer from competition officials in Brussels. But UK Culture Secretary Karen Bradley is under pressure to probe the deal to see if it would give the media mogul too much influence over public opinion.

Murdoch’s company already owns 39.1 percent of Sky and now wants to buy the rest for 10.75 pounds a share.

The transaction needs European Commission competition clearance, but that isn’t expected to present a problem. A higher hurdle would come in the shape of UK “media plurality” rules, which are meant to ensure that news outlets offer a diverse range of views.

An investigation on media plurality grounds could cause a real headache for Murdoch, given that it would pose the nebulous question of political risk, which could be more unpredictable than ever following the UK’s vote to leave the EU.

The UK’s governing Conservative Party is feeling some heat to thoroughly review the deal, with opposition politicians calling yesterday to block the latest proposal.

Long memory

Five years ago, the UK Parliament asked Murdoch’s company to withdraw its bid after it came to light that his now defunct News of the World and other Murdoch papers had hacked the phones of a murdered schoolgirl, the relatives of deceased British soldiers and the victims of terrorist bombings in London.

Labour’s shadow culture minister, Kevin Brennan, reminded fellow UK lawmakers yesterday of their 2011 parliamentary motion calling on the government to block the takeover.

“Nowhere does it say we should sit quietly for five years and come back again when we have forgotten all about it,” Brennan said. “We haven’t forgotten about it.”

Former Labour leader Ed Miliband was even more categorical. “What has really changed since the house passed the motion five years ago?” he asked. “This bid should be rejected.”

Ultimately, the decision will rest with Culture Secretary Bradley, who must base her decision squarely on the media plurality rules. But politics could easily creep into the equation.

The Conservative government of Prime Minister Theresa May might find itself stuck between a rock and a hard place.

The rock would be the temptation to curry favor with a media tycoon who owns some of Britain’s most influential papers at a time when May is preparing to enter tough negotiations on Brexit. The hard place is the political reality that she may need the support of Labour politicians opposing Murdoch’s plan to move forward with the EU divorce.

Read all about it

Investors wondering how all this might affect Murdoch’s latest bid can find clues in the events that unfolded after his News Corp. first made an approach six years ago.

At the time, News Corp. had bid 7.8 billion pounds for the 60.9 percent it didn’t already own in the pay-TV operator, when known as British Sky Broadcasting Group.

News Corp. filed the transaction for merger approval with the EU regulator in Brussels in November 2010. A day later, the UK’s secretary of state for business at the time, Vince Cable, issued a public-interest intervention notice, voicing concerns about safeguarding a sufficient “plurality of persons with control of media enterprises.”

The EU watchdog cleared the transaction without conditions in December 2010, having concluded that “News Corp and BSkyB are mainly active in different markets in the UK and Ireland and compete with each other only to a limited extent.”

In the separate media plurality probe, Cable asked the country’s media and communications regulator Ofcom to investigate the public-interest considerations arising from the deal.

Following that initial review, News Corp. proposed a set of concessions in 2011 that involved spinning off BSkyB unit Sky News into a separate company. They included a board for the new company with a majority of independent nonexecutive directors and an independent nonexecutive chairman.

After seeking comments on these commitments from interested parties, News Corp. made further concessions to protect the news channel’s independence. It proposed to bring in an independent director with senior editorial and/or journalistic expertise to sit in on board meetings where decisions on editorial matters were made.

Meanwhile, Culture Secretary Jeremy Hunt had taken over the review after Cable was found to have made prejudicial comments about the deal. In June 2011, Hunt said he was minded to accept the undertakings.

But then the phone-hacking scandal took hold of proceedings. In July, Parliament passed its motion calling for News Corp. to withdraw its bid, questioning whether Murdoch’s company was a “fit and proper” custodian of papers including the Times and the Sun.

News Corp. pulled the bid in response, a move likely made with a future play for Sky in mind.

Changes

Since then, News Corp. has split into two entities: A new News Corp. now holds the company’s UK media publishing assets, while Twenty-First Century Fox is primarily active in film and television.

This split, Twenty-First Century Fox can argue, means that Sky and the UK papers would be owned and managed by separate companies.

Yet Rupert Murdoch and his son Lachlan sit on the boards of both entities. Another son, James, is already chief executive officer at Sky.

Arguably, the independence of Sky News could be at stake with a full takeover by Twenty-First Century Fox. Twenty-First Century Fox could propose a similar spinoff for Sky News in an attempt to reassure concerned regulators and lawmakers about the future direction of the channel.

But politics — an unpredictable beast at the best of times — could wreak havoc on any approval between now and the end of March, when May has promised to start EU exit talks. Parliamentary machinations could well dictate the success of any deal eventually struck between Murdoch and Sky.

*With additional reporting by Andrew Boyce and Rebecca Jalleh.

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