New hurdles for News Corp`s bid for BSkyB

New hurdles for News Corp's bid for BSkyB

Last Updated: Mon, Jul 11, 2011 19:00 hrs

Telecom regulator to scrutinise, Deputy PM advises Murdoch to retreat; News Corp says it won’t, hopes to delist BSkyB after getting full control.

Britain’s culture secretary (actually minister) Jeremy Hunt, today in the House of Commons, said Rupert Murdoch’s News Corporation’s bid for satellite broadcaster BSkyB would be referred to Ofcom, the country’s competition commission for the communications sector.

The decision to do so despite the deal (for full control; News Corp already has a 39 per cent stake in BSkyB) getting clearance from the European Commission’s competition watchdog last year is due to the phone hacking scandal that had engulfed the company in recent days. The group’s Sunday tabloid, News of the World (NoTW), had hacked into several private phones in Britain. The ensuing national scandal finally led to the paper being closed by its owner last week.

News Corp’s bid also received another blow today, with Deputy Prime Minister Nick Clegg urging Murdoch to withdraw the bid. “Rupert Murdoch is now in London, seeking to sort things out. I would simply say to him, ‘Look how people feel about this, look how the country has reacted with revulsion to the revelations’,” said Clegg, whose party is one of two coalition partners in the government.

However, News Corp later today said it would not withdraw its bid. Meanwhile, the BSkyB stock price has lost nearly a fifth of its value since last Monday, when the news broke of NoTW having been found to have hacked into the phone of a murdered teenage girl. Between July 4 and today, its share price on the London Stock Exchange dropped to around 700p, losing 18 per cent.

As mentioned earlier, another setback for News Corp’s bid came from culture secretary Hunt, who is to write to Ofcom, the independent regulator and competition authority for the UK communications industries, asking if the closure of NoTW raised any additional concerns over the bid to buy fully into BSkyB. Hunt has been designated to overlook the deal and advise the government if it must go through or not.

Reports said Hunt will ask experts if they are reconsidering any of their previous guidance on the “credibility, sustainability or practicalities of the undertakings offered by News Corporation”.

Sources inside News Corp told Business Standard that it hoped to consolidate its cash flow and move faster on global expansion plans with the full acquisition of BSkyB. Holding 39 per cent stake in the broadcaster allows the parent company to report only 39 per cent of BSkyB’s profits as its own. A majority holding will allow News Corp to fully do so and holding above 75 per cent will allow delisting of BSkyB from the stock exchanges. Doing the latter would enable the company to ‘move quickly’ on its expansion plans globally, said a News Corp executive.

Criticising the move to refer the bid to Ofcom, a company executive said the bid had already been cleared by the European competition commission and accepted by the secretary of state a year before. “It’s a question of whether politics should prevail over the rule of law or if Parliament should opine on mergers and acquisitions,” said a senior News Corp executive, who did not wish to be named. “We believe that due process should be followed from a criminal and regulatory standpoint and politicians should not interfere in the police (work).”

Further, on speculation about the six days a week group tabloid, The Sun, starting a Sunday edition, this News Corp source said, “We haven’t analysed or reached any plans (to start a Sunday Sun). But we can say that closing of NoTW has left a gap in the Sunday market to launch a new paper. But no decision has been made.”

New Murdoch scam?

It emeged on Monday that the bank account of former prime minister Gordon Brown may have been illegally accessed by another News Corp group paper, The Sunday Times. This alleged illegal access is said to have happened when Brown was Chancellor of the Exchequer (finance minister), before becoming PM. Brown was chancellor between 1997 and 2007 in the Labour government of Tony Blair.

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