Fox’s Sky Consolidation Proposal Officially Referred to CMA

Analyst warns delays lessen chances of deal receiving approval

21st Century Fox’s years-long journey to consolidate its interests in British satellite company Sky suffered another delay Wednesday when U.K. regulators officially referred the matter to the Competition and Markets Authority, a move that will add at least another six months to the process.

The move was expected after U.K. Secretary of State for Digital, Culture, Media and Sport Karen Bradley said earlier in the month she would refer the proposal to the CMA. Bradley had voiced concerns about Fox’s commitment to public broadcast standards as well as corporate governance. U.K. politicians had also expressed concerns that the deal would give Fox’s ruling Murdoch family undue influence over British media. But the referral was not automatic in that the public had a chance to weigh in. That period has apparently passed, failing to sway officials.

In an earlier statement, when it appeared the referral was likely, Fox said it looked forward “to engaging constructively with the CMA, as independent authority, and hope that the findings of this process will be respected by the Secretary of State.”

Credit Suisse media analyst Omar Sheikh warned in a note to clients that the CMA investigation could raise the odds that the deal does not pass regulatory muster.

Sheikh wrote that while broadcasting standards can be addressed through greater compliance and governance methods, media plurality may require divestitures that Fox may not be willing to make.

“Our view is that Fox has every incentive to offer concessions up to full divestiture of Sky News, and that Discovery Communications or Viacom could be interested in the network if it were to be put up for sale next year,” Sheikh wrote.

Fox initially tried to consolidate Sky in 2011, but a phone hacking scandal associated with one of its U.K. tabloids forced the company to shelve the deal. Fox reintroduced the consolidation proposal in 2016, offering to purchase the remaining 61% of Sky it didn’t already own for $14.8 billion.

British politicians had expressed concerns that the consolidation would lead to the “Foxification” of Sky and the deal ran into trouble earlier this year after British officials were angered after President Trump accused British intelligence of helping former U.S. President Barack Obama's administration to conduct surveillance of Trump and his campaign before the November elections. Trump had cited a Fox correspondent’s reports as evidence of the claims, which the British government has vehemently denied.

In April, the European Commission gave its unconditional nod to the deal and in June, Ofcom, the U.K equivalent of the Federal Communications Commission, said the proposal didn’t raise issues that required competition review.

In a statement on its website, the CMA said it has experience in investigating issues concerning a wide range of sectors including publishing, hospitals and defense.

“We will use that same evidence-based approach to thoroughly and impartially investigate the proposed takeover of Sky Plc by 21st Century Fox on the public interest grounds of media plurality and a genuine commitment to broadcasting standards,” CMA Panel chair Anne Lambert said in a statement. “Once the investigation is complete we will report back to Karen Bradley for her to make a final decision.”

The agency said it will publish a timetable for the investigation in the coming days and has set up an investigation page to set out all the steps and provisional deadlines until the final report, including the timeline for submissions from third parties. 

According to Sheikh, the CMA has 24 weeks to complete the investigation, which can be extended for a maximum of eight additional weeks. The Secretary of State will then have 30 days to make her decision and negotiations on the remedies will take place beginning on April 13 at the earliest or June 22 at the latest. The timetable would be delayed further if the U.K. calls for another general election.