Fox's Sky Deal: U.K. to Make Final Decision on Extended Review "in the Coming Weeks"

Karen Bradley - Getty H 2016
Credit: Getty / Dan Kitwood

Culture secretary Karen Bradley says she is still "minded to" request an extended probe of the deal.

U.K. culture secretary Karen Bradley did not make it official Thursday, but said that she still expects to stick to a recent initial decision that 21st Century Fox's proposed deal to take full control of European pay TV giant Sky needs to get a more in-depth review by Britain's Competition and Markets Authority (CMA).

Just ahead of the U.K. parliament's summer recess, Bradley on Thursday said she has not made a final decision, but expects to do so within weeks. She reiterated that she still does not expect an in-depth review of the company's commitment to broadcasting standards as Ofcom had found no concerns on that front. But she also left the door open for an extended review on that second ground as she continues to review comments from various parties. 

Bradley had in late June said that she was "minded" to take the approach of an extended analysis on competition grounds after reviewing a report from U.K. media regulator Ofcom, which analyzed the deal's effects on competition, or media plurality, and commitments to editorial standards. Bradley had back then cited concerns about the transaction's increased influence of members of the Murdoch family trust, which controls Fox and News Corp.

She had also said in a speech in the British Parliament back then that Fox had proposed conditions, or "undertakings," focused on maintaining the editorial independence of Sky News by establishing a separate editorial board, with a majority of independent members, that would oversee the appointment of the head of Sky News and any changes to Sky News editorial guidelines. They also included a commitment to maintaining Sky-branded news for five years with spending "at least" similar to current levels.

She had said though she was "minded" not to approve the deal with the proposed conditions, explaining: "Ofcom's view was that these remedies would mitigate the — serious — media plurality public interest concerns. They also suggested that the remedies could be further strengthened."

The companies and other parties had then submitted more than 10,000 comments on Bradley's "minded to" decision by a July 14 deadline, and the secretary will continue to analyze those before making a final decision. "There has not been time to consider all the representations, and I am not in a position today to make my final decision on referral," she told Parliament on Thursday. "I expect I will be in a position to come to a final decision on referral — including in respect of the broadcasting standard ground — in the coming weeks."

Fox had in its submission not offered additional concessions beyond ones made so far, Bradley confirmed, with several analysts saying that this would lead to the extended so-called "phase 2" CMA review. 

"The detailed representations from 21th Century Fox raise a number of points on Ofcom's public interest test report — and the analysis underpinning Ofcom's recommendations — contesting its view that the transaction raises public interests concerns which justify a referral to a phase 2 investigation by the CMA," Bradley told Parliament, adding she also received a submission from Sky. "Whilst some of the points they have raised may benefit from closer examination by the CMA at phase 2 in the event that the merger is referred, there was nothing in their representations that, at this stage, has led me to change my mind about the appropriateness of referral."

Concluded Bradley: "Unless new evidence from other representations changes my mind in the coming weeks the bid will therefore be referred to a Phase 2 review on at least one ground — media plurality."

CMA reviews typically take around six months. That makes it likely that the deal will only be completed in 2018. If it doesn't wrap by the end of this year, Fox would have to pay Sky shareholders a dividend of 10 pence a share, or about $220 million.

One risk of the CMA review is that Prime Minister Theresa May's government after a recent election needs to rely on a smaller party for a majority in Parliament. If the government decided to throw in the towel before the deal review is completed and there was a new election, Fox could possibly see the Labour Party, members of which have been outspoken against the Sky deal, in power, with the then culture secretary making the final decision on the deal.

Campaign group Avaaz, which has criticized the Sky deal, on Thursday reiterated its call for an extended deal review on two grounds. "The government should use the newly announced delay to Rupert Murdoch's Sky takeover bid to examine failings in Ofcom's investigation into corporate governance and broadcasting standards assessment of 21st Century Fox, and could face legal action if they don't launch a new probe," it said.

Ofcom recently also published a separate but overlapping report that concluded that Sky would remain a "fit and proper" U.K. broadcasting license holder if 21st Century Fox's proposed deal goes through.

"It seems clear that there were significant failings of the corporate culture at Fox News. Fox's response to the claims has been mixed," Ofcom wrote. "Some allegations were handled swiftly. But Fox was slower to deal with Bill O'Reilly, its star anchor. In order to have a concern about fitness and properness we would need to see evidence of misconduct in the parent company Fox. However, we have no clear evidence that senior executives at Fox were aware of misconduct before it was escalated to them."

Fox already owns a 39 percent stake in Sky, which operates in the U.K., Ireland, Germany, Austria and Italy. The conglomerate in December agreed to buy the remaining roughly 61 percent stake in Sky for 11.7 billion pounds, which was about $14.5 billion at the time, or $15.2 billion now. The European Union and other countries already approved the deal.

But Bradley, who has remained U.K. culture secretary in May's new government, has been seen as being under pressure to not wave the deal through given that the topic of the Murdochs and their political power has been a hotly discussed topic in Britain.

Critics have said the Murdochs have too much power as owners of Fox and News Corp., which owns British newspapers The Times and The Sun, while Fox has highlighted the separation of its entertainment businesses from newspaper company News Corp. a few years ago and the rising influence of online and social media.