Fox/Sky deal off – for now

March 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

March 2018 Issue

21st Century Fox’s proposed £11.7bn buyout of the 61 percent of Sky Plc that it does not currently own has been provisionally blocked by the UK’s Competition and Markets Authority (CMA) as it is not in the public interest.

The deal, which was first mooted in December 2017, could still go ahead in the long term, however, as the companies have a number of options available to them which could result in the transaction securing regulatory approval, including the sale or spinning off of Sky News.

According to the CMA, the deal, as it currently stands, would concentrate too much power in the hands of Fox’s controlling Murdoch family. Yet, concerns about media plurality notwithstanding, the CMA did not rule out the transaction on the grounds of an unwillingness to meet UK broadcasting standards, a decision welcomed by Fox. The CMA also noted that Sky had a good record with “comprehensive and effective policies and procedures” to ensure the quality of its broadcasts.

Given that a third of the UK’s population watches, reads or hears news published by the Murdoch Family Trust, which controls Fox and News Corporation – the owner of The Sun newspaper, as well as The Times and The Sunday Times – the CMA felt that allowing the deal to go ahead in its current form would allow the Murdoch Trust to hold too much sway over public opinion and the national political agenda.

In a statement concerning the CMA’s initial findings, 21st Century Fox noted that while it was disappointed with the decision, it welcomed the authority’s finding that the company has a genuine commitment to broadcasting standards and vowed to continue to cooperate with the CMA until a final decision has been reached.

Anne Lambert, chair of the CMA, said: “Media plurality goes to the heart of our democratic process. It is very important that no group or individual should have too much control of our news media or too much power to affect the political agenda. We have provisionally found that if the Fox/Sky merger went ahead as proposed, it would be against the public interest. It would result in the Murdoch family having too much control over news providers in the UK, and too much influence over public opinion and the political agenda. Our in-depth investigation also considered whether the deal would be against the public interest regarding broadcasting standards. Due to their existing track record in the UK, and the range of policies and procedures the companies involved have in place to ensure broadcasting standards are met, we did not find public interest concerns in this regard.”

The CMA has until 1 May 2018 to provide its final recommendation to Matt Hancock, the Secretary of State for Digital, Culture, Media and Sport. Following the authority’s final recommendation, it will be left to the British government to make the final decision regarding the viability of the transaction.

The CMA will now embark upon a three-week consultation during which time it will consider three options: blocking the deal entirely, potentially spinning or selling off Sky News, or keeping it as part of Sky but increasing its independence to address concerns about the Murdoch family’s influence. The CMA has suggested measures such as an granting Sky News an independent board and funding guarantee for five years.

A potential stumbling block for any potential sale of Sky News, under the CMA’s proposals, is that the organisation has been a consistent loss-maker for Sky, and as such it may struggle to attract a buyer. Sky has previously threatened to review the future of Sky News if the takeover bid is blocked, potentially shuttering the company entirely.

The Fox-Sky deal could yet also have an impact on the $52bn sale of Fox to Disney, which was announced in December 2017. The Disney acquisition, which still has to be approved by US regulators, includes Fox’s existing 39 percent stake in Sky.

Richard Summerfield