Join our community of smart investors

Fox/Sky faces CMA referral on media plurality

The government has proposed to refer the deal on grounds of media plurality but not broadcasting standards
June 30, 2017

Culture secretary Karen Bradley is minded to refer 21st Century Fox’s proposed £18.5bn takeover of Sky (SKY) to the Competition and Markets Authority (CMA). On the advice of the UK’s media regulator, Ofcom, the government has decided to refer the deal for more rigorous assessment on the grounds of media plurality, but not on Fox’s commitment to broadcasting standards. The announcement sent Sky’s share price up 3 per cent on the day to 988p, slightly closer to the 1,075p a share offer from Fox.

IC TIP: Hold at 988p

With regards to media plurality, Ofcom concluded that the deal “raises public interest concerns” due to the increased influence that members of the Murdoch Family Trust - which effectively controls News Corp, which has the Times, The Sunday Times and The Sun newspapers within its stable - will have over UK news and politics. With Sky under 100 per cent control, Fox would have the third largest total reach of any news provider and “a unique presence on radio, television, in print and online”.

Prior to the announcement, Fox had attempted to head off a competition investigation with a pledge to fund Sky News for five years and give the channel a separate editorial board. Though Ofcom said the undertakings mitigated its concerns, Mrs Bradley decided they weren't enough, citing "serious public interest considerations".

With a CMA investigation looming, Fox is free to come up with a different solution and has until 14 July to present them. Fox will be keen to get the takeover done and dusted before the end of the year, otherwise it will have to pay Sky shareholders a special 10p dividend.

When it came to the 'fit and proper' test, Fox has faced much scrutiny in the last few months after allegations of sexual harassment were made against senior Fox News personnel. In its report, Ofcom concluded that these allegations did amount to “significant failures of the corporate culture” at Fox News, but they did not demonstrate that the merged company would lack a genuine commitment to broadcasting standards. Thus one hurdle to the deal was removed. A statement from Fox said it was pleased with this decision, but was disappointed Mrs Bradley did not accept Ofcom's view on the media plurality undertakings.

Shadow culture secretary Tom Watson told the House of Commons that if James Murdoch, who is both chairman of Sky and chief executive of Fox, could pass a 'fit and proper' test, "then that says more about the rules than it does about Mr Murdoch". He warned that lessons had not been learned from the phone-hacking scandal at News of the World, formerly part of News International alongside the aforementioned papers.