Fox worries prompt UK to take long look at Murdoch's Sky bid
LONDON (Reuters) - Rupert Murdoch's planned $15 billion takeover of European broadcaster Sky (>> Sky) was thrown into doubt on Tuesday when Britain toughened its stance on the deal over concerns about standards at his U.S. Fox News network.
Media Secretary Karen Bradley had already wanted regulators to scrutinize the increased influence Murdoch would gain from fully owning Sky, but in an unexpected twist she said they should also examine whether he had a genuine commitment to broadcasting standards.
The announcement sent London-listed shares in Sky down 5 percent, before they recovered to trade at 937 pence, well below the 10.75 pounds per share Twenty-First Century Fox (>> Twenty-First Century Fox) has agreed to pay for the 69 percent of Sky it does not already own.
"I consider it important that entities which adopt controversial or partisan approaches to news and current affairs in other jurisdictions should, at the same time, have a genuine commitment to broadcasting standards here," Bradley told parliament.
She said the Competition and Markets Authority (CMA) should also look into corporate governance at the right-leaning Fox.
The news network has been rocked by a series of sexual harassment and discrimination lawsuits, leading to high profile resignations including former chief executive Roger Ailes and star anchor Bill O'Reilly.
Sky stopped broadcasting Fox News in Britain last month, a decision prompted it said by low audience numbers rather than any concerns about reputational damage in relation to the bid.
The channel, however, has become a lightning rod for Murdoch's long-standing critics in Britain, and it was cited repeatedly in opposition to the Sky takeover.
Britain's political leaders have long sought the support of Australian-born Murdoch, who shook up the establishment after he arrived in Britain in the 1960s to buy newspapers such as the News of the World, Sun and Times.
He then took on the BBC and ITV (>> ITV) with the launch of the Sky TV platform in 1989.Decades later he remains at the center of the industry, with critics accusing him of using his media empire to play puppet master to governments of both political persuasions.
His reputation was severely damaged in 2011 when a phone-hacking scandal at the News of the World forced him to drop a previous attempt to buy Sky.
Undeterred, Murdoch, 86, and his family returned in December with an agreed bid to take full control of Sky, which broadcasts sports, entertainment and U.S. drama programs in Britain, Ireland, Germany, Austria and Italy.
Son James Murdoch said at the time he did not foresee any regulatory difficulties. Prime Minister Theresa May's Conservative government, however, has taken a cautious approach, and Bradley appointed media regulator Ofcom to examine the likely impact.
Ofcom said although there were some concerns about broadcasting standards, they did not merit a full investigation. Bradley did not agree.
Sky said it was disappointed by the further delay, noting that Ofcom had said it was not necessary. "Nevertheless we will continue to engage with the process as the Secretary of State reaches her final decision," it said.
Fox too said it was disappointed that Bradley had chosen not to follow the advice of the independent regulator, which it said was the expert body tasked with enforcing the Broadcast Code.
"As the correspondence between (government) and Ofcom makes clear, we do not believe that there are grounds for the Secretary of State to change her previous position," it said.
It said it looked forward to engaging with the CMA on its in-depth review as soon as possible, and subject to any further delays expected the deal to close by the end of June 2018.
Opposition politicians had called on May's government, weakened by the outcome of an election in June, not to wave through the bid.
Competition lawyer Becket McGrath at Cooley LLP said the minister had taken the strongest stance open to her.
"I think people have underestimated the level of concern over this deal within government," he said.
Analysts at RBC Capital Markets said Bradley's decision to refer the deal on broadcasting standards as well as on media plurality grounds was a surprise.
"The CMA is likely to look at the relationship between Fox, the Murdoch family and control of the organization," they said, saying there was now a 15 percent chance the deal would be blocked outright.
They said any issues raised by regulators should be able to be resolved by remedies from Fox.
"The real question in our mind, is where is the point of pain, at which point Fox would not be willing to accept the remedies," they said.
Bradley has given both sides 10 days to respond and will then rule whether the takeover, which has already been approved in Brussels, will be submitted to the competition regulator for a six-month investigation into both areas of media plurality and broadcasting standards.
(Additional reporting by Kylie MacLellan; editing by Guy Faulconbridge and Keith Weir)
By Kate Holton and Paul Sandle