FOXA Fox Corporation

By Stu Woo and Ben Dummett 

British antitrust regulators said that 21st Century Fox's proposed $16 billion bid to consolidate ownership of U.K. pay-TV giant Sky PLC would give the Murdoch family too much influence in the British media -- but they kept the door open to remedial actions that would still make a deal possible.

The preliminary finding comes after Mr. Murdoch sealed a separate agreement to sell a chunk of Fox assets, including its 39% stake in Sky, to Walt Disney Co. for $52 billion in December. That has made regulatory scrutiny of the Fox-Sky transaction here an important part of a much bigger, globe-spanning deal.

The determination, by Britain's Competition and Markets Authority, raises the latest hurdle in Mr. Murdoch's yearslong efforts to buy the 61% of the broadcaster that his media empire doesn't already own. Sky investors were encouraged, however, that the regulator detailed options that could allow a deal to go through. The CMA will make a final recommendation in May. It will then fall to the British government to make a decision.

The regulator also said Tuesday the deal passed its other test -- whether Fox was committed to British broadcasting standards. Sky shares rose more than 2% in early London trading -- still slightly below Fox's GBP10.75 a share offer.

In a statement, Fox said that it was "disappointed by the CMA's provisional findings. We will continue to engage with the CMA ahead of the publication of the final report in May."

Technically, the CMA move shouldn't affect the terms of the Disney-Fox deal, since Disney has agreed to buy only Fox's existing shareholding in Sky. Disney considers Sky one of the jewels of the Fox assets -- a way to expand its international footprint.

Should the government ultimately block the Fox-Sky deal, or if Fox walks away instead of agreeing to remedies, Disney would then have to decide whether to initiate a fresh bid for the rest of Sky, to take 100% control.

That is all assuming the Disney-Fox transaction is approved -- a separate regulatory gantlet that will play out in the U.S. and Europe and that could last more than a year. Disney representatives weren't immediately available for comment.

The British regulator suggested Tuesday it was more open to 100% ownership of Sky by Disney than it would be by Fox. If Disney succeeded in its bid for the Fox assets, it would "significantly weaken" the link between the Murdoch family and Sky. It said the Disney deal to buy the Fox assets would be subject to its own regulatory review.

The regulators' issue is that Sky, a satellite-TV and cable provider, also runs its own news channel, Sky News. Regulators said Tuesday if Fox had complete ownership of Sky, that would give the Murdoch family "greater influence over public opinion and the political agenda through Sky News, and would add to the...already significant influence over public opinion and the political agenda through its control of the News Corp titles."

The Murdoch family is big shareholders in both 21st Century Fox and News Corp, which publishes widely read U.K. newspapers, including the Times of London, the Sunday Times and the Sun tabloid. News Corp also owns The Wall Street Journal.

The regulator listed possible remedies that could ease its concerns about media concentration. They include spinning off Sky News, Sky's news channel. Sky had said it might shutter the business, anyway. Sky declined to comment Tuesday.

Another option floated by regulators was allowing Fox to create a board of mostly independent members to oversee Sky News. That arrangement could fall away should Disney clinch its deal with Fox and take control of Sky. That would offer Fox a relatively simple way of alleviating the CMA's concerns as it awaits approval on the Disney deal. Still, the regulator said it was concerned about the effectiveness of this condition.

The British regulators will allow Fox and groups that support and oppose the deal to respond to its preliminary recommendations. They are scheduled to deliver final recommendations in May to the U.K. culture secretary, who can decide to approve the deal outright, approve it with conditions or to reject it.

Sky was a satellite-TV provider called British Sky Broadcasting before turning into a pan-European operation with 22.5 million customers in the U.K., Ireland, Germany, Austria and Italy. It is both a telecommunications operator -- selling TV, internet and wireless plans -- and a media company that broadcasts its own channels and produces sports, news and entertainment shows.

Mr. Murdoch first tried to consolidate ownership of Sky at the beginning of the decade, but ended his attempt in 2011 amid political and public backlash after employees at his now-defunct News of the World hacked into the phones of politicians and celebrities, as well as murdered teenager Milly Dowler. Mr. Murdoch apologized for the hackings and closed the newspaper.

Fox launched its current Sky bid, for GBP11.7 billion, in December 2016.

Write to Stu Woo at Stu.Woo@wsj.com and Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

January 23, 2018 10:45 ET (15:45 GMT)

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