News Corp. (NWSA) bought itself time to weather the furor over phone hacking at the now-defunct News of the World by pushing U.K. Culture Secretary Jeremy Hunt to refer its bid for British Sky Broadcasting Group Plc (BSY) to regulators.
Hunt was forced to send the offer for the pay-TV operator to the U.K. Competition Commission for review after Rupert Murdoch’s News Corp. yesterday dropped its previous offer to spin off Sky News into a separate company to complete the BSkyB deal. Lawyers called the decision by News Corp. “a clever tactic” and a “smart move.”
Revelations of phone hacking at News of the World have overwhelmed the company’s bid for BSkyB. Accusations the paper hacked into the mobile phone of a 13-year-old murder victim in 2002 and bribed police officers provoked widespread criticism from politicians over whether the New York-based company was “fit and proper” to own a U.K. broadcaster.
“The Competition Commission will take six months to a year to look at it and they’re hoping the media storm will die down,” said Rosemary Choueka, a competition and regulation lawyer at Lawrence Graham LLP, who called it a “clever tactic.” When the review is completed “they may have to make some internal changes, but everyone isn’t talking about it in the media and there’s not huge political pressure.”
(For a related story on Murdoch’s political influence, click here. To read a story on News Corp.’s share price, click here.)
The Competition Commission has at least 24 weeks to review the deal, said Siobhan Allen, a spokeswoman for the regulator in London. The agency will issue a report to Hunt and he will have the final decision on whether to approve or block the deal.
Hunt said the latest review, which follows investigations by U.K. media regulator Ofcom and the Office of Fair Trading, will focus on media plurality, whether the deal would reduce the number of voices, and the fit and proper test. Ofcom, which has the power to revoke BSkyB’s license, can still hold up the deal as it considers the fit and proper criteria.
‘Properly and Fully’
“The Competition Commission are considering media plurality just as I was” and the “fit and proper” test will also be important, Hunt told lawmakers in the House of Commons in London. “All issues will be considered properly and fully.”
News Corp., which also publishes The Sun, The Times and The Sunday Times, had agreed to carve out the Sky News channel as a separate company. It also offered to nominate a monitoring trustee to oversee the spinoff process, and the inclusion of an independent director. The British government said previously it was likely to accept News Corp.’s undertakings.
Murdoch last week decided to close the 168-year-old News of the World, Britain’s biggest Sunday newspaper. The last issue was published July 10.
The scandal has wiped about 2.6 billion pounds off BSkyB’s market value since the Guardian reported allegations about murdered schoolgirl Milly Dowler on July 4. BSkyB dropped as much as 2.9 percent to 695 pence in London trading today and was at 702 pence at 3:28 p.m. in London. News Corp. rose 13 cents to $16.23 in Nasdaq Stock Market trading at 10:32 a.m. in New York.
“Withdrawing the undertakings means that spinning off Sky News is not relevant anymore and any pre-existing thoughts on the deal are scrapped,” Alex de Groote, an analyst at Panmure Gordon in London, said in a telephone interview.
The pay-TV broadcaster is now an “attractive opportunity” as the stock is likely to rebound, according to Goldman Sachs Group Inc. analysts.
Robert Vidal, a competition lawyer at Taylor Wessing LLP in London, called the decision to withdraw the so-called undertakings on Sky News a “smart move.”
“The demise of the News of the World is actually going to help News Corp.’s position,” Vidal said. “The current outcry is evidence of media plurality because if News Corp. had complete control over the media, then none of this would be happening.”
Politicians have pushed News Corp. to drop the BSkyB bid as the phone-hacking scandal has widened. Deputy Prime Minister Nick Clegg said the company should “do the decent and sensible thing.”
Forcing the referral to the Competition Commission may mean that the company is more confident in their legal arguments than in the political firestorm, said Jason Chess, a media lawyer at Wiggin & Co. in London.
“It would be very, very unlike News International or BSkyB to do something that they weren’t comfortable with,” Chess said. “They are not in the habit of losing legal or regulatory disputes. So they’re saying that we’re not interested in this speculation about fit and proper.”
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