News Corp., run by Rupert Murdoch, may need to split off or give up editorial control of its Sky News channel in order to buy British Sky Broadcasting Group Plc after the government yesterday gave it the chance to avoid a full-blown antitrust review.
The proposed 7.8 billion-pound ($12.3 billion) acquisition of the rest of BSkyB, the U.K.’s biggest pay-TV operator, will be referred to the Competition Commission unless News Corp. offers to sell media assets, grant editorial independence to Sky News or agree to restrictions on how it sells newspapers in conjunction with TV packages, the government said yesterday.
New York-based News Corp. isn’t prepared to sell its Times or Sun newspapers, according to a person familiar with the situation. Lawyers said so-called behavioral remedies probably won’t win final approval from regulators. That leaves major changes at 24-hour news channel Sky News as the only way to win approval for the acquisition of BSkyB.
“There will be some compromises,” said Alexander Wisch, an analyst at Standard & Poor’s Equity Research. “Sky News has the name, it gives the company a reputation. Having Sky News is like having a trophy asset.”
BSkyB may say tomorrow first-half earnings before interest, taxes and exceptional items climbed 21 percent to 486 million pounds ($769 million) from 401 million pounds a year earlier, according to analyst estimates gathered by Bloomberg. Sales may have increased 9 percent to 3.14 billion pounds.
The broadcaster’s growing profit and cash flow spurred News Corp. to make a bid for the rest of the company in June, as it aims to generate more money from subscription-driven businesses.
Culture Secretary Jeremy Hunt yesterday delayed the referral to give News Corp. time to offer remedies suggested by industry regulator Ofcom. He said he would start a formal 15-day consultation if News Corp. offered undertakings to “prevent or otherwise mitigate the merger from having effects adverse to the public interest and which I propose to accept.”
News Corp. said yesterday the review was “seriously flawed” and it reserves the right of legal challenge. A spokeswoman declined to comment on any potential remedies.
A review by antitrust regulators at the Competition Commission could delay the proposed deal by at least six months, making the transaction more expensive as BSkyB’s profit rises. News Corp. offered 700 pence a share for BSkyB in June. The stock closed at 752p yesterday, 6.9 percent more than the bid and valuing the company at 13.1 billion pounds.
“News Corp. would like to get this thing in the bag as quickly as possible,” said Nick Bell, an analyst at Jefferies International in London. “As Sky continues to execute so well, it will lead to a higher share price.”
In its report, Ofcom said three broad categories of potential remedies had been identified: editorial independence for BSkyB’s Sky News, divestment of some news media assets, with the third being a blockage of the proposed acquisition on public interest grounds.
“There are clear challenges to News Corp. and BSkyB in finding suitable remedies to address concerns at this stage,” Gustaf Duhs, a competition lawyer at Stevens & Bolton LLP, said in an interview.
Hunt, a Conservative party member, took over the review from Business Secretary Vince Cable, a Liberal Democrat, who was removed from the probe after he was quoted as saying he had “declared war” on Murdoch. The Sun backed the Conservatives in the U.K.’s general election in May.
Hunt’s review process is “unprecedented,” according to a group of rival media companies, including owners of the Guardian, Daily Mail and Telegraph newspapers. The proposed takeover “affects the entire media industry and all interested parties must be able to participate fully,” the group said.
News Corp. may be ready to consider the separation of Sky News as an option to get government approval, a person familiar with the matter said earlier this month, declining to be identified because the process is confidential. The person said that News Corp. would be unwilling to offer concessions beyond spinning off Sky News.
News Corp. may need to hurry to offer any behavioral remedies, such as promising not to bundle newspaper discounts with Sky TV subscriptions, while Hunt still controls the review, Stevens & Bolton’s Duhs, said. Such guarantees require continuous monitoring and aren’t popular with antitrust regulators, he said.
The delay “buys Jeremy Hunt more time,” Duhs said. “It puts pressure on News Corp. to come up with undertakings that Hunt is capable of accepting.”
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