UK government agrees with News Corp’s plan for BSkyB

The UK government intends to approve media giant News Corp’s plan to spin off subsidiary Sky News unit to enable its takeover of satellite broadcaster BSkyB.
Culture Secretary Jeremy Hunt said he accepted the plan for Sky News to be made into an…

The UK government intends to approve media giant News Corp’s plan to spin off subsidiary Sky News unit to enable its takeover of satellite broadcaster BSkyB.

Culture Secretary Jeremy Hunt said he accepted the plan for Sky News to be made into an independent public limited company (plc), called Newsco, paving the way for News Corp to acquire the 61% of BSkyB it does not already own for as much as £7.8bn.

Under the plan, the Rupert Murdoch-controlled News Corp will still retain a 39.1% stake in Newsco, but will have no direct influence over its board.

Announcing that a merger will not be referred to the Competition Commission, Hunt said Newsco will have a board made up of a majority of independent directors, including an independent chair. In addition, News Corp will need to receive government permission if it wanted to increase its shareholding in the news group over the next ten years.

Hunt said: “Informed by advice from the regulators, I believe that these will address concerns about media plurality should the proposed News Corp/BSkyB merger go ahead. The undertakings offered would ensure that shareholdings in [Newsco] would remain unchanged, and indeed offer it more independence from News Corp than it currently has.” The decision over whether to refer the proposed merger to the Competition Commission was passed to Hunt when Business Secretary Vince Cable was stripped of responsibilities for media regulation, after he was secretly recorded saying he had “declared war” on Rupert Murdoch’s media empire.

Back in late December, the media giant cleared a major hurdle after gaining approval from European regulators for its takeover of BSkyB.

News Corp currently owns two of the largest newspapers in the UK: The Times and The Sun, and critics of the planned takeover argue that having full ownership of the country’s largest pay-TV operator would give the media giant too much power.

An alliance of UK media companies, including Telegraph Media Group, BT, Guardian Media Group, Associated Newspapers, Trinity Mirror and Northcliffe Media, have already condemned Hunt’s move.

Responding to a government consultation that expired on 21 March, the coalition of media groups argued it was “fanciful” to hope the new Sky News would be kept independent of News Corp.

However, although the alliance would have three months to launch a judicial review following a final ruling from the government, reports suggest the group has privately conceded that it has virtually no chance of blocking the plans.

Murdoch’s eagerness to push ahead with the BSkyB takeover would have been further emboldened by the company’s latest financial results. Revenues for BSkyB soared 15% to £3.186bn for the six months to 31 December 2010, compared with £2.773bn a year earlier, while profits jumped 26% to £520m. Adjusted EBITDA climbed 19% to £677m, compared with £568m for the previous fiscal year.

However, BSkyB’s independent directors have yet to recommend a takeover by News Corp. When Murdoch tabled his latest bid of 700p per share in July, these directors made it clear that they would not entertain an offer for less than 800p.

News Corp has so far refused to budge on its offer, which it regards as “full and fair”.