Business

Murdoch BSkyB takeover decision defended by government

  • 3 March 2011
  • From the section Business
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Culture Secretary Jeremy Hunt has defended his decision to allow Rupert Murdoch's controversial bid for BSkyB to proceed.

Mr Hunt said that undertakings made by News Corporation would ensure greater independence for Sky News.

But shadow culture secretary Ivan Lewis said Labour had "serious concerns" about the decision-making process.

He questioned why the minister had decided not to refer the takeover to a full Competition Commission inquiry.

"Public interest not political expediency will determine our judgment on whether this revised package goes far enough to avoid the need for a Competition Commission enquiry," Mr Lewis said.

The culture secretary said that media plurality in the UK would be strengthened if the deal went ahead.

He explained that the chairman and the majority of board members of Sky News would be independent under the terms of the offer made by News Corp.

This would mean James Murdoch, Rupert Murdoch's son, stepping down as chairman, he said.

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

An alliance including the Guardian, Associated Newspapers, Trinity Mirror and the Telegraph said they would be "examining all legal options".

The proposed takeover is now open to consultation until 21 March, after which Mr Hunt will make a final decision.

Unless he changes his mind, it will then be down to BSkyB and its shareholders whether to accept an offer from News Corp.

'Suspicious'

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 already own.

Earlier on Thursday, Mr Hunt said he intended to allow the takeover to proceed following News Corp's offer to spin off Sky News as an independent company.

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 OFT 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.

'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

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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