The UK plans to expand its probe into 21st Century Fox's bid for pay-TV broadcaster Sky, exposing Rupert Murdoch and his family to further scrutiny over governance at their media empire and adding to the uncertainty about the £11.7 billion (€12.98 billion) deal.
Culture secretary Karen Bradley is inclined to ask the Competition and Markets Authority to conduct a months-long investigation into Fox's commitment to broadcasting standards, in addition to the widely expected review over whether the deal would give the Murdochs too much influence over UK media, she said Tuesday in Parliament.
The scope of the planned CMA referral surprised investors, given Bradley had initially said she was inclined to confine the review to questions of media-influence. Shares of Sky, which is 39 per cent owned by Fox, fell as much as 5.1 per cent, the biggest drop since the UK's June 2016 vote to leave the European Union.
Fox chief executive James Murdoch and fellow managers now face the prospect of months of interrogation over recent events at scandal-hit Fox News and past corporate governance failings in the Murdoch media empire. Wrongdoing at News Corp's UK newspapers scuppered a 2010 attempt to buy the rest of Sky, while this time, sexual- and racial-harassment allegations at Fox News have given opponents ammunition to slow a deal that initially appeared on track to sail through.
Opposition deluge
Bradley said she received 43,000 comments on the deal, most of them part of activist campaigns against the merger going ahead. Around 30 letters were substantive, she said, raising potentially new evidence or commenting on the approach of communications regulator Ofcom.
“I have taken careful account of all relevant representations and Ofcom’s advice,” Bradley said. “I am now minded to refer the merger to the CMA on the grounds of genuine commitment to broadcasting standards.”
James Murdoch and Fox co-chairman Lachlan Murdoch had previously warned that any delay would signal to other companies that the UK isn't "open for business" as the country leaves the European Union. Britain is under pressure to reassure investors of the nation's future path amid stalling Brexit talks with the EU.
Bradley said she will give Fox 10 days to offer feedback on her “minded-to” decision on broadcasting standards, before proceeding with the CMA referral. She will make the final decision on whether to clear the merger after considering the CMA’s feedback, which could come as late as March 2018.
CMA review
At issue for the CMA would be the scope of the Murdoch family's media influence in the UK and Fox's broadcasting record. On media influence, Rupert Murdoch is both co-chairman of Fox and executive chairman of News Corp, which owns the Times of London, the Sunday Times and the Sun newspapers. Adding Sky News to the mix would give the Murdoch family influence over a third of the news sources used in the UK, according to a June report by communications watchdog Ofcom.
On broadcasting standards, the CMA would have to weigh the relevance of recent revelations of alleged misconduct at Fox News, including claims of fabricated quotes for a story and alleged instances of racial and sexual harassment. Ofcom’s initial review of the takeover found no broadcasting standards concerns given Fox’s favorable record of compliance with the UK’s Broadcasting Code.
The CMA, which declined to comment, has the infrastructure to do a much more thorough study than that initially conducted by Ofcom. It would likely entail hearings with Fox and Sky executives, as well as harvesting huge amounts of data from the companies, their rivals and industry bodies. The CMA is set to appoint a panel of experienced competition lawyers and industry grandees who would give their recommendation to Bradley.
Labour looming
The deal’s progress has already been set back by the upheaval of the UK general election, the furor over racial and sexual harassment allegations at Fox News and obstruction by the deal’s opponents.
Political advocacy group Avaaz has challenged a review by Ofcom that found Sky would continue to be a "fit and proper" media outlet under Fox ownership. The group has further threatened Bradley with a legal challenge if she were to choose not to call for a deeper probe of Fox's commitment to broadcasting standards.
"The direction of the political winds in the UK are less favorable every day with Labour rising," said Alice Enders, head of research at Enders Analysis. "Who knows what the climate will be like by the time the CMA reports in April 2018 if not June 2018."
The CMA referral makes it almost certain that Sky will now have to pay a special dividend of about 170 million pounds to its shareholders as the takeover won’t complete by December 31st. Fox, which initially said it expected the deal to be done by the end of 2017, must pay a breakup fee of £200 million if it isn’t completed by August 2018.
"This is a decision the Murdochs will not like," former Labour leader Ed Miliband said in Parliament. "She's done her job today, and it's now for the CMA to do theirs."
-(Bloomberg)
