Fox Will Risk 6-Month Sky Review Instead of CompromiseBy , , and
Regulator seen as more reliable than talks with government
Deadline to enhance concessions already offered is Friday
Rupert Murdoch’s 21st Century Fox Inc. won’t offer further compromise to overcome the U.K. government’s resistance to its $15.2 billion bid for full control Sky Plc, betting it can hold out for a more straightforward approval from a nonpartisan regulator.
The media giant is turning down U.K. Culture Secretary Karen Bradley’s proposal to add stronger assurances that the Sky News service will remain editorially independent in exchange for a chance she would approve it without additional review, according to people familiar with the matter. The decision means Bradley is likely to refer the deal to the Competition and Markets Authority for a probe that could last as long as six months.
Facing a Friday deadline, New York-based Fox concluded the CMA offered a more reliable process, said the people, who asked not to be identified discussing private matters. The company also decided that Bradley wouldn’t have had the political latitude to approve a deal without additional review anyway, the people said.
Acquiring the 61 percent of Sky not already owned by Fox would create a trans-Atlantic media and entertainment giant, offering Murdoch a European distribution platform for pay television and Internet to complement its film studio and cable channels.
While the CMA could give Fox the approval it seeks without the conditions Bradley sought to impose, the approach could backfire. Prime Minister Theresa May’s Conservative Party was weakened in last month’s general election. If U.K. voters head back to the polls and elect the more anti-Murdoch Labour Party, Bradley’s replacement would make the final ruling.
“It’s a gamble for sure,” Neil Campling, an analyst at Northern Trust Capital Markets in London, said in an email. “I had felt there would be some concessions offered to sweeten the process.”
Missing a year-end deadline for completion would trigger a costly Fox payout. If the deal isn’t completed by Dec. 31, Fox is obligated to pay Sky shareholders a dividend of 10 pence a share. The payout would total more than 170 million pounds ($220 million), based on the number of shares outstanding. Fox is liable for an additional fee if the deal fails to close.
“I can only assume they’ve resigned themselves to paying this special dividend,” said Alex DeGroote, an analyst at Cenkos Securities in London. “I think they feel the atmosphere is so febrile around this case and they want to take the heat out of the situation by sending it to the CMA.”
Sky fell as much as 4.4 percent in late trading in London Thursday after the Guardian reported Fox’s decision, and Fox dropped as much as 4 percent in New York. Fox has decided that it’s better to start the clock on a CMA investigation as soon as possible, the Guardian said. Sky was trading at 971 pence at 10:25 a.m. in London on Friday, having closed at 975 pence last night.
Bradley said June 29 that the U.K. is inclined to refer the offer to the CMA, although she left the door open for a resolution if the proposals to ensure editorial independence at Sky News and to provide financial backing for five years were strengthened.
A CMA review typically lasts as long as 24 weeks, which would push the review to late December, and could be extended to 32 weeks.
“The likelihood is the deal still goes through eventually,” said Ian Whittaker, head of European media research at Liberum on Bloomberg TV. “Fox has decided that trying to offer more concessions really doesn’t make much sense and it would rather go to a full review.”