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BSkyB Drops Below News Corp. Bid as Government Seeks Advice

A closed circuit television (CCTV) camera stands outside British Sky Broadcasting Group Plc's (BSkyB) headquarters in Isleworth, U.K., on Monday, July 11, 2011. Photographer: Simon Dawson/Bloomberg
A closed circuit television (CCTV) camera stands outside British Sky Broadcasting Group Plc's (BSkyB) headquarters in Isleworth, U.K., on Monday, July 11, 2011. Photographer: Simon Dawson/Bloomberg

July 11 (Bloomberg) -- British Sky Broadcasting Group Plc fell below News Corp.’s offer price after U.K. Culture Secretary Jeremy Hunt asked regulators whether the bidder’s undertakings were still credible following a phone-hacking scandal.

BSkyB declined as much as 7.6 percent to 693 pence in London trading, and traded at 700 pence at 2:08 p.m. Rupert Murdoch’s News Corp. in June last year offered 7.8 billion pounds ($12.5 billion), or 700 pence a share, for the 61 percent in the U.K.’s biggest pay-TV broadcaster it doesn’t already own. News Corp. dropped as much as 6.5 percent to $15.66 in New York.

U.K. Deputy Prime Minister Nick Clegg urged Murdoch to “reconsider” his bid following a public outcry over allegations that Murdoch’s News of the World tabloid intercepted messages left on murdered schoolgirl Milly Dowler’s mobile phone. Hunt today asked regulator Ofcom whether there is still “confidence in the credibility, sustainability or practicalities” of the undertakings offered by News Corp.

Hunt is asking “does their general behavior lead one to the position that you can’t entirely trust them?” Stewart Purvis, a former partner at Ofcom and professor of television journalism at City University in London, said in an interview.

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. The company also offered the nomination of a monitoring trustee to oversee the spinoff process, and the inclusion of an independent director. The government previously said it was likely to accept News Corp.’s undertakings.

Politically Driven

“This has now become a completely politically driven issue,” Liberum Capital analyst Ian Whittaker said today. “It will be hard for the government to approve the bid, either now or at some point in the future.”

Ed Miliband, the leader of the opposition Labour Party, said Murdoch should drop the bid.

News Corp., based in New York, last week decided to close the 168-year-old News of the World, Britain’s biggest Sunday newspaper. The last issue was published yesterday.

The scandal has wiped almost 2.7 billion pounds off BSkyB’s market value since the Guardian reported the Milly Dowler allegations on July 4. The pay-TV broadcaster is now an “attractive opportunity” as the stock is likely to rebound, according to Goldman Sachs Group Inc. analysts.

Investment Opportunity

“Our base case assumes that, ultimately, News Corp. is able to acquire BSkyB but with a significant time delay, and we maintain our 12-month price target of 900 pence,” Goldman Sachs analysts, including Vighnesh Padiachy, said in a note to clients today. “We see the 14 percent downward move in BSkyB’s share price in the last two days as an attractive entry point to buy a company with top-quartile industry positioning and returns.”

Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.

“In the present atmosphere it has become so poisonous it’s very difficult for this takeover to proceed,” John Whittingdale, a member of Cameron’s Conservative party and chairman of the culture committee of the House of Commons, said today on the BBC Radio 4’s Today show. “I think the best thing would be if it could be put on hold until we have a much clearer idea of who knew what, who was responsible.”

London police have made at least seven arrests as part of the phone-hacking investigation, including that of Andy Coulson, one-time editor of the News of the World and former communications chief for Cameron. Coulson has denied any knowledge of reporters tapping phones when he led the paper.


Ofcom received Hunt’s letter and will respond within days, a spokesman said today. Ofcom has the power to bar News Corp. from owning a broadcaster if it finds senior executives not “fit and proper” to hold a license. OFT spokeswoman Kasia Reardon declined to comment.

A weeklong consultation on additional conditions imposed on News Corp. over the deal ended on July 8 and the U.K. government said it will take “some time” before it will give a final ruling. The Department of Culture said it had received 156,000 messages of objection, as well as a written petition that it was informed had 100,000 signatures.

The U.K. government is looking for a way to block the deal because of the public outrage after the hacking allegations, a person familiar with the situation said today. As the regulatory process has already been laid out, the only organization that can raise issues with the takeover by News Corp. at this stage is Ofcom, said the person.

Increasing Cash Flow

News Corp. hasn’t made any decision on whether to withdraw its bid and will continue to wait for regulatory clearance on the transaction which may come after the summer recess, said another person familiar with the matter. The House of Commons is breaking from July 20 to Sept. 5. Alice Macandrew, a London-based spokeswoman for News Corp., declined to comment

News Corp., which already owns 39 percent of BSkyB, wants full control to gain access to the broadcaster’s increasing cash flow. BSkyB may also help Murdoch make News Corp.’s newspapers more profitable by allowing him to bundle print and pay-TV subscriptions and spread content over media platforms.

To contact the reporter on this story: Jonathan Browning in London

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