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U.K. Delays Decision on Sky Purchase by 21st Century Fox

Deal referred for antitrust review 6/29/2017 8:40 PM Eastern

Instead of approving 21st Century Fox’s acquisition of the 60% stake in Sky that it does not already own, the U.K. Secretary of State for Culture, Media and Sport referred the deal to antitrust regulators.

The decision delays the long-awaited $15 billion deal.

“While we welcome the Secretary of State’s decision on broadcasting standards, we are disappointed that she does not accept Ofcom’s recommendation stated in its report that ‘….the proposed undertakings offered by Fox to maintain the editorial independence of Sky News mitigate the media plurality concerns.’”

Fox also noted that Ofcom recognized that Sky, under full 21st Century Fox ownership, would remain a fit and proper holder of broadcast licenses.

21st Century Fox will now make representations to the secretary of state regarding her provisional decision and Ofcom’s report and will continue to work constructively with U.K. authorities, the company said.

If the secretary of state makes a final decision to refer to the Competition and Markets Authority, they would expect that the review would take at least 24 weeks. In such an event, the transaction is expected to close by June 30, 2018.

Wall Street has also been waiting for 21st Century Fox to complete the Sky deal.

“Based on our conversations with U.K. investors and watching Sky's stock, this seemed to be the expected outcome. We were hoping for a definitive answer either way, but alas, we did not get one,” said Wells Fargo analyst Marci Ryvicker in a note to investors Thursday.

“All this does is delay the deal for the time being,” Ryvicker said. "Recall that the European Commission gave the takeover deal a green light this past April given no major competition concerns. Irish authorities also gave their approval earlier this week. So, this deal is still a very real possibility."

Credit Suisse analyst Omar Sheikh added, “With the ‘fit and proper’ and broadcasting standards hurdles cleared, we are encouraged by the government's announcement and believe the probability of the transaction being approved has materially improved.”

Sheikh said the British office of communication expressed concern that the Murdoch family trust, which has influence over both 21st Century Fox and News Corp., could also seek to influence Sky News. 21st Century Fox proposed creating an independent editorial board for Sky News as one way to alleviate those concerns but needs to do more to pass regulatory muster.

Spinning off Sky News, possibly to an entity in which Fox has no voting rights, could solve the problem, Sheikh said.

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