Regulators light way to Fox takeover of Sky

Shares in Sky closed up 2.3 per cent, or 23p, at £10.26 after analysts said that the CMA’s intervention made regulatory approval more likely.

The authority also acknowledged that plurality concerns would “fall away” if Walt Disney completed its proposed purchase of Fox’s entertainment business, including Sky. That transaction faces scrutiny from US regulators and is not expected to be finalised until the middle of next year.

The watchdog outlined several remedies that could address its concerns about media plurality and indicated that it was willing to approve the “least costly”. The options include selling or spinning off Sky News, or putting in place structural changes that insulate the loss-making news channel from the influence of the Murdoch Family Trust.

In its submissions last year to Ofcom, the media regulator, Fox indicated that it was willing set up a Sky News editorial board dominated by independent members, and to ensure that Fox employees had no influence on the channel’s editorial choices.

The CMA indicated that it would accept these “firewall” remedies if they were sufficiently strengthened.

Claire Enders, of Enders Analysis, a media and telecoms adviser, said that the CMA’s provisional findings were a “great advance” for the Sky-Fox deal and vindicated Ofcom’s original advice to the government that the deal did not merit further scrutiny on broadcasting standards grounds.

Sky previously had warned that it may be forced to shut down Sky News if it became a regulatory impediment to the Fox takeover, and the channel held an emergency staff meeting to reassure employees about their future.

Ms Enders said the prospects for Sky News now looked brighter. Jefferies, the investment bank, said: “An acceptable framework for spinning out Sky News appears to us quite attainable.”

Fox said it was disappointed by the CMA’s provisional findings on plurality, but would continue to engage with the watchdog until the publication of its final report in May.

A final decision will be made by Matt Hancock, the new culture secretary.

Rupert Murdoch, the chairman of News Corporation, is co-chairman of 21st Century Fox with his son Lachlan. James Murdoch, Mr Murdoch’s younger son, is chief executive of 21st Century Fox and chairman of Sky.

Shares in 21st Century Fox were broadly flat on Wall Street at $37.39.

Q&A

Who is buying whom?
21st Century Fox is trying to buy the 61 per cent of the pay-TV broadcaster Sky that it does not already own in an £11.7 billion deal.

Separately, Walt Disney announced in December that it had agreed the £49.3 billion purchase of all Fox’s film studios, cable networks and international television businesses. If both deals are completed, then Disney, not the Murdoch family, will end up controlling Sky — an outcome that sidesteps most of the objections raised by opponents of Fox’s bid for the broadcaster.

What is the likely impact of the CMA’s statement?
Most analysts agree that the Competition and Markets Authority’s provisional findings do not pose a significant threat to Fox’s Sky bid and could help it to secure speedy approval. The regulator rejected concerns about Fox’s commitment to broadcasting standards and laid out a series of remedies that could mitigate the impact on media plurality.

“It strikes us that this announcement almost confirms the likelihood of the current deal getting ultimate approval from the UK government,” analysts from Citigroup, the US investment bank, said.

What about Disney’s bid for Fox?
The Disney-Fox deal is not dependent on Fox buying Sky first, although the Takeover Panel could oblige Disney to make an offer for all of Sky if the Fox-Sky deal is blocked.

Analysts said that Sky could seek to smooth the path to final regulatory approval by selling Sky News to Disney directly in advance of the broader Fox-Disney transaction.

ANALYSIS: Disney can go the distance
The Competition and Markets Authority’s provisional ruling against Fox’s bid to take full control of Sky is a stumbling block (Matthew Moore writes). However, Sky’s share price has risen, which suggests optimism that the deal is still on the cards.

The regulator fears that the takeover would give the Murdoch Family Trust, which controls 21st Century Fox, “too much influence over public opinion and the political agenda”.

The Murdochs already own News Corp, publisher of The Times, so the regulator believes that full control of Sky would strengthen their influence further. It has set out a range of remedies to address this. These included spinning off or selling Sky News, or insulating the news channel from influence.

The idea of spinning off Sky News is not new. News Corp offered to do so in 2011 under a similar bid. The takeover offer was withdrawn later, but the authority notes that Jeremy Hunt, who was culture secretary at the time, was minded to accept this remedy. Sky has warned previously that it may have to shut Sky News if ownership were an impediment to a deal.

At any rate, plurality objections will be moot if the $66 billion takeover of Fox by Walt Disney proceeds as planned. Disney does not own any other news outlet in Britain so there are unlikely to be concerns about it taking ownership of Sky, and its bid for Fox is not conditional on the Sky deal being rubber-stamped.

The authority suggested that it would have to reconsider its provisional ruling if the Disney-Fox deal went through. “The Disney-Fox transaction would significantly weaken the link between the Murdoch Family Trust and Sky, which is at the root of our concerns about media plurality,” it said. “On the face of it, these concerns would fall away if [it] went ahead as announced.”

That deal is not due to be completed before mid-2019.