By Jason Douglas and Stu Woo
LONDON--The U.K. government said it was likely to require
further scrutiny of 21st Century Fox Inc.'s GBP11.7 billion ($15.1
billion) bid to buy the 61% of British TV giant Sky PLC it doesn't
already own--adding another hurdle to Rupert Murdoch's protracted
quest to consolidate control of his trans-Atlantic media
assets.
British Culture Secretary Karen Bradley, who oversees media
mergers in the country, said she was minded to refer the proposal
to U.K. competition authorities after Britain's communications
regulator raised public interest concerns about the deal. The
"minded to" language is used by the government to signal its
intentions, but isn't binding.
Speaking in Parliament, Ms. Bradley said she would make a final
decision on whether to refer the deal after hearing representations
from the parties involved over the next 10 days. Fox and Sky have
until July 14 to respond.
The government's move followed two reports ordered by Ofcom,
Britain's media regulator, into the proposed deal. Ofcom said it
has concluded that allowing Fox to take full control of Sky risked
giving too much control of the U.K. media landscape to the Murdoch
family.
In one report, Ofcom said "the transaction raises public
interest concerns as a result of the risk of increased influence by
members of the Murdoch Family Trust over the U.K. news agenda and
the political process, with its unique presence on radio,
television, in print and online."
Ofcom said proposals by Fox to safeguard the editorial
independence of Sky's news channel helped mitigate its concerns,
but Ms. Bradley said she didn't think those undertakings went far
enough.
Mr. Murdoch and his family are a major shareholder in both Fox
and News Corp, which owns a number of British newspapers, including
the Sun tabloid and the Times of London. News Corp also owns The
Wall Street Journal.
Mr. Murdoch, who helped create Sky in 1990, has long sought full
control of the broadcaster. He abandoned a previous attempt to buy
out Sky in 2011 after a phone-hacking scandal at one of his
now-defunct papers triggered widespread political and public
outrage.
Full ownership of Sky would further diversify Fox's revenue,
making it less reliant on its North American business and giving it
a cash stream from Sky subscribers.
A Sky spokesman declined to comment. A representative at Fox
wasn't immediately available for comment.
A second test that Ofcom posed was whether Fox would be a "fit
and proper" owner of Sky. The media watchdog had wide latitude to
define what "fit and proper" meant, and it examined this year's
sexual-harassment scandal at Fox News, interviewing complainants
against the channel. A group of British politicians wrote to the
media watchdog to urge regulators to block the deal, citing among
their concerns the harassment allegations.
Ofcom said Thursday that it considered allegations of sexual and
racial harassment at Fox News "extremely serious and disturbing,"
but said there was no clear evidence that senior executives at Fox
were aware of misconduct before it was escalated to them in July
2016, after which action was taken. Fox has said it is cooperating
with U.S. government probes about the sexual-harassment claims.
"We have concluded that the overall evidence available to date
does not provide a reasonable basis for Ofcom to conclude that, if
Sky were 100% owned and controlled by Fox, it would not be a fit
and proper holder of broadcast licenses," it said.
A fresh antitrust probe could add months to the merger process.
The proposed deal had already gone through a regulatory gauntlet,
including passing muster with European Union regulators, before the
U.K. government called in Ofcom.
If British competition authorities eventually approve the
proposal, Fox must still win over the 75% of minority shareholders,
excluding Fox's stake, to cement the deal. Some investors argued
that Fox's 36% premium on Sky's share wasn't enough. Shares of Sky
have been trading under Fox's offer prices, suggesting
still-significant investor skepticism about a deal.
Sky shares rose about 3% after the decision Thursday, to about
GBP9.86, still below the GBP10.75 offer from Fox. One analyst who
specializes in analyzing takeovers said the move reflects relief
among investors that the deal at least cleared the fit-and-proper
test that some believed would be more onerous to overcome than
antitrust issues.
When Mr. Murdoch helped create Sky, when his British
satellite-TV business merged with a U.K. rival, it started beaming
news, sports and entertainment programming to homes via satellite
before branching out to offer cable-TV and mobile-phone services,
too. It expanded in Europe, creating a European pay-TV giant with
22 million customers in Britain, Ireland, Germany, Austria and
Italy.
Sky owns both nationwide telecommunications services--selling
cable, internet and mobile packages--and the rights to its news,
sports and entertainment programs. As such, there is no U.S.
equivalent to Sky, though AT&T Inc. could become one if
regulators approve its proposal to buy media giant Time Warner
Inc.
Mr. Murdoch first tried to buy Sky in 2010 via News Corp, which
was then a media conglomerate that included both Fox and its
newspaper businesses. In 2011, allegations surfaced that one of
those publications, the News of the World, had hacked into the
phones of politicians, celebrities and, most notably, murdered
teenager Milly Dowler.
Mr. Murdoch apologized and closed the News of the World. In July
2011, News Corp dropped its Sky bid. In 2013, News Corp split into
two companies: Fox, the entertainment arm, and News Corp, which
included the newspaper and publishing businesses.
Ben Dummett contributed to this article.
Write to Jason Douglas at jason.douglas@wsj.com and Stu Woo at
Stu.Woo@wsj.com
(END) Dow Jones Newswires
June 29, 2017 09:09 ET (13:09 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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