FOXA Fox Corporation

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.

Fox said in a statement that it was disappointed that Ms. Bradley reached that decision, and that it would continue to work constructively with the U.K. authorities. Sky said it would continue to engage with the process.

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 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 09:28 ET (13:28 GMT)

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