Business

Rupert Murdoch BSkyB takeover gets government go-ahead

  • 3 March 2011
  • From the section Business
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Rupert Murdoch's News Corporation has been given government approval for its controversial bid to take over BSkyB.

The green light follows News Corp's offer to spin off Sky News as an independent company.

Rival media groups dismissed News Corp's offer as a "whitewash" and said they would "vigorously contest" it.

News Corp, which owns the Sun, the News of the World and the Times and the Sunday Times, is looking to take over the 61% of BSkyB that it does not own.

Culture Secretary Jeremy Hunt said he intended to accept News Corp's offer rather than refer the takeover to the Competition Commission.

Ofcom, the UK media regulator, had said the deal should be referred to the commission. The European Commission has already ruled there is no reason to oppose the takeover on competition grounds.

Mr Hunt told the BBC he was "very, very conscious that people are suspicious of politicians' motives", which is why he sought advice from Ofcom and the Office of Fair Trading when making his decision.

"Ofcom assured me that News Corp's undertaking addressed its concerns about media plurality."

He said that News Corp had moved "a very long way" from its original offer and that spinning off Sky News would in fact mean it had "less control of news media [in the UK]", not more.

News Corp said it welcomed Mr Hunt's decision.

'Whitewash'

However, the Labour party expressed concerns about the government's decision.

"This U-turn by Jeremy Hunt will raise further concerns about the transparency of the process. Four weeks ago, he was minded to refer the deal to the Competition Commission. Now he has changed his mind," said shadow culture secretary Ivan Lewis.

"We intend to interrogate whether Sky will be truly independent. The assurances given [by News Corp] must be meaningful," he told the BBC.

Business Secretary Vince Cable had been tasked with deciding whether to approve News Corp's bid for BSkyB, but was stripped of the responsibility in December last year when undercover journalists reported he said he had "declared war on Mr Murdoch".

A number of media groups have also opposed the takeover, including the Guardian, Associated Newspapers, Trinity Mirror and the Telegraph.

"We shall be vigorously contesting this whitewash of a proposal during the consultation period, as well as examining all legal options," they said in a joint statement.

Opponents will have until 21 March to lodge any complaints.

'Status quo'

Under the terms of News Corp's proposals, the board of Sky News would have a non-executive, independent chairman and a majority of non-executive, independent directors.

News Corp has proposed that shares in Sky News be distributed among existing shareholders, with Mr Murdoch's company maintaining its 39% holding.

News Corp would not be allowed to increase its shareholding without the permission of the culture secretary for 10 years.

It has also offered to provide funding in the form of "a substantial revenue stream" to Sky News for 10 years.

Media analyst Steve Hewlett told the BBC the offer "rolls forward the status quo, but with an independent chairman and board".

The funding commitment and continued shareholding ensures that News Corp "has a long-term interest in Sky News prospering," he added.

However, some commentators expressed concerns that News Corp could exert influence over Sky News despite its commitment to independence.

"This deal raises profound questions over what will happen to the ownership of Sky News in the longer term - who will make senior editorial appointments and for how long a so-called separation of one channel from a corporate parent can be sustained," said Professor Steven Barnett, professor of communications at the University of Westminster.

Deals involving independent boards for Mr Murdoch's takeover of the Times newspapers and the Wall Street Journal have "proved virtually worthless in protecting editorial independence", he said.

BBC business editor Robert Peston said Mr Hunt's decision heralded "huge changes to the landscape of the British media industry".

A combined News Corp and BSkyB would generate revenues that would "dwarf all rivals, even the BBC", he said.

Global interests

Mr Murdoch has made no secret of his desire to gain control of BSkyB.

News Corp offered 700 pence a share in June last year, valuing BSkyB at £12bn, which was rejected.

But the share price is now above 800p, so Mr Murdoch would have to up his offer, perhaps as high as 850p a share, analysts said.

This would mean an offer of about £9.1bn, up from £7.3bn, to buy the remaining 61% of shares that News Corp does not own.

BSkyB made a pre-tax profit of £465m in the last six months of 2010, with revenues of £3.2bn.

"BSkyB is doing very well, and News Corp considers Sky's pay-TV service as the best in the world," said Mr Hewlett.

However, there are question marks about who might buy the shares in Sky News that would be made available to investors, analysts said.

"Rolling news is not a lucrative business," said David Jones at IG Index.

News Corp has many interests outside the UK, including the Fox broadcast and cable networks, 20th Century Fox film studios, Harper Collins book publisher, and newspapers such as the Wall Street Journal.

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