News' BSkyB Bid Hits Snag

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News Corp.'s year-long quest to assume full control of U.K. satellite giant British Sky Broadcasting hit another snag Monday, after the proposal was referred to Britain's Competition Commission, which could add months to the process.

The move comes in the wake of mounting pressure from regulators and shareholders stemming from the phone hacking scandal at News Corp.'s News of the World newspaper, were reporters at the paper illegally tapped into voice mail and phone records of celebrities, government officials and members of Britain's royal family over a period of several years. The 168-year-old tabloid published its final issue on Sunday, in what many observers have called an effort to appease government leaders in order to get the BSkyB deal approved. But as new revelations continue to emerge from the scandal - the latest is that the tabloid offered to pay a New York City police officer to retrieve phone records of victims of the Sept. 11, 2001 terrorist attacks in New York - chances that the deal passes muster are growing increasingly dim.
News Corp. already owns about 39% of BSkyB and manages Europe's largest satellite TV service. Back in June 2010 News proposed acquiring the 61% of BSkyB it doesn't own for an estimated $11.5 billion, which at the time most observers believed would receive regulatory approval without a hitch. That seemed to be the case until the phone-hacking scandal gained steam.
News Corp. had previously said it would spin off its Sky News service in an effort to appease government regulators, but pulled that proposal earlier today.
Moving the proposal to the Competition Commission could add another six months to the process as the agency launches a full scale investigation to determine whether the transaction would break anti-monopoly laws.
In a statement News said it was "ready to engage the Competition Commission on substance."
"News Corp. continues to believe that, taking into account the only relevant legal test, its proposed acquisition will not lead to there being insufficient plurality in news provision in the UK," the company continued.
Some shareholders have used the scandal and the BSkyB delays as fuel for lawsuits. The latest is a class action suit brought in Delaware Chancery Court on Monday by holders of less than 1% of News Corp. shares charging that the board of directors failed to exercise proper oversight and take sufficient action since news of the hackings first surfaced more than five years ago. The suit extends an earlier action and was filed by a group including Amalgamated Bank and several municipal and union pension funds.
News shares have gotten hammered as the scandal progresses, and lost about 7% on Monday, falling $1.23 each to close $16.10 per share. BSkyB shares closed earlier down 4.6%, to 716 pence ($11.40) per share on the London Stock Exchange.