The biggest takeover in the UK media industry was called into question today when the Competition and Markets Authority said 21st Century Fox’s £18.5bn takeover of Sky plc, the owner of Sky News, “may be expected” to act against the public interest.
The competition regulator said, in its provisional findings, that the deal would not operate against the public interest in terms of either Fox or Sky having a genuine commitment to UK broadcasting standards.
But it warned that, in terms of the need to maintain plurality in the UK media, the takeover could potentially act against the public interest.
It said this is because the Murdoch Family Trust – the vehicle through which Rupert Murdoch, the executive chairman of 21st Century Fox, owns shares in that business – is also a major shareholder in News Corporation, owner of The Sun, the UK’s top-selling national newspaper, as well as The Times and The Sunday Times.
It went on: “We have provisionally found that the transaction will significantly increase the extent of control the MFT is able to exercise over Sky and Sky News.”
The CMA’s report said that proposals tabled by both companies to allay such concerns, such as putting place measures to strengthen the editorial independence of Sky News, did not go far enough.
It went on: “Given their extensive experience of the UK market and direct current and historic involvement with the Sky business, Rupert and James Murdoch [the current chief executive of 21st century Fox and chairman of Sky plc] would be likely to have considerable opportunity to influence the recommendation for any new head of Sky News.”
And it added: “Our view is that although the MFT will not have full ownership of Sky following the transaction, the significantly increased control it will be able to exercise over Sky and Sky News is sufficient to give rise to concerns that, as a result of the transaction, there could be increased editorial alignment of Sky News and the newspapers owned by News Corp.”
The CMA said there were a number of remedies that the parties could offer to address its concerns.
The first is that the deal be called off. The second is a potential sale or divestiture of Sky News. The third would be ‘behavioural remedies’ to insulate Sky News from the influence of the MFT.
The regulator’s findings will raise fresh questions over the future of Sky News.
In its submission to the CMA, made as part of the regulator’s investigation, Sky told the watchdog it should not assume Sky News would continue broadcasting if the takeover were to be blocked.
The CMA’s findings decision comes six weeks after 21st Century Fox agreed to sell its entertainment assets to Walk Disney Co for $52.4bn.
That deal will bring together the 21st Century Fox film studio behind hits such as Avatar, X-Men and Ice Age together with Disney’s film assets, which include Pixar, Marvel and the Star Wars maker LucasFilm.
The sale includes Fox’s stake in Sky.
The CMA said today that it had considered recommending to Matt Hancock, the new Secretary of State for Culture, Media and Sport, that no action be taken on the grounds that, while it did have public interest concerns, these would “fall away” once Disney had bought the Fox assets.
But it added: “At this stage we cannot, however, be sufficiently confident that the Disney/Fox transaction will proceed.”
The CMA also extended the timetable for its investigation by a further eight weeks.
It will now make its final decision, on which Mr Hancock must act, by May 1.
Both parties will now be invited to respond to the CMA’s provisional findings by March.
Responding to the CMA’s report, 21st Century Fox said: “We welcome the CMA’s provisional finding that the company has a genuine commitment to broadcasting standards and the transaction would not be against the public interest in this respect.
“Regarding plurality, we are disappointed by the CMA’s provisional findings. We continue to engage with the CMA ahead of the publication of the final report in May.”
It said it expected “regulatory approval” of the deal by the end of June.
Sky said it had noted the CMA’s provisional findings and would make further comment “as and when appropriate”.
Had the deal been approved by the CMA, the full takeover of Sky by Fox would have gone ahead, with the full ownership of Sky later being passed onto Disney.
Lawyers for Disney, Sky and Fox have spent weeks trying to establish whether, under the City’s Takeover Code, Disney would be obliged to press ahead with a full takeover of Sky even if Fox’s takeover of the company had been blocked and Disney emerged with just a 39.1% stake in the broadcaster.
Fox, the world’s fourth-largest media company after Comcast, Disney and Time Warner, already owns a 39.1% stake in Sky.
It first tabled a proposal in December 2016 to buy the remainder of the company for £11.7bn, valuing the whole of Sky at £18.5bn.
In March last year, Karen Bradley, the then Secretary of State for Culture, Media and Sport, asked Ofcom, the media and telecoms regulator, to investigate whether the takeover was in the public interest with regard to media plurality and broadcasting standards.
Ofcom said there was no reason to think that the deal was against the public interest on broadcasting standards grounds but indicated it did have some concerns on media plurality.
Ms Bradley subsequently referred the takeover to the CMA and, following pressure from the Liberal Democrat leader Sir Vince Cable and the former Labour leader Ed Miliband, invited the competition regulator to look at both media plurality and broadcasting standards.
This was seen as a hardening of the government’s stance, dismaying Sky, which pointed out that the hold-ups to the deal were causing confusion over its investment plans.
A separate review by the European Commission had already given the deal the green light.
The takeover was also cleared by individual regulators in all of the other countries – Germany, Austria, Italy and Ireland – in which Sky broadcasts.
Shares of Sky, which are valued at 1075p each under the terms of the deal, rose 25p to 1028p.