Rupert Murdoch Suffers the Friendliest of Knock-Backs

(Bloomberg Gadfly) -- Rupert Murdoch could scarcely have imagined the U.K.'s top trustbuster would be so constructive in its criticism of his plans to buy all of Sky Plc.

It's no surprise the Competition and Markets Authority doesn't like a deal that would see Sky become wholly owned by its Murdoch-controlled parent Twenty-First Century Fox Inc. Still, the nature of the CMA's objections were the critical thing for the media mogul. That holds true even though he last month agreed to sell most of Fox to Walt Disney Company.

There was a risk of the CMA blocking the deal on the grounds of broadcasting standards, following the British phone-hacking scandal and allegations of misconduct elsewhere in the Murdoch empire. It did not. An adverse finding would have pretty much revoked Murdoch's license from society to operate in the U.K. Such an objection would probably have been terminal to the deal.

Rupert Murdoch Suffers the Friendliest of Knock-Backs

The CMA's grievance is less controversial and easier to address. It says a Fox-controlled Sky would give Murdoch too much sway over British media -- at least until control of Fox passes to Disney, and that's still some way off.

The ways to address this are fiddly. For its part, Fox proposes tighter governance for Sky. The CMA is skeptical of such so-called behavioral remedies. Promises to be good are hard to enforce.

Selling Sky's news operation works as a get-around, in theory. That, however, depends on finding an independent and well-resourced buyer willing to take on an entity that hasn't operated as a standalone business. Not easy.

Spinning off news into a separate company would leave Sky still attached, with Fox wielding power as the main customer. The operation would probably still rely on Fox for essential services, albeit provided on a commercial basis. That's akin to being divorced but living together. Hardly a clean break.

Murdoch would no doubt prefer to make one of these solutions work. If the planned sale of most of Fox to Disney falls through, it would surely be better for him that Fox owned all of Sky rather than just its current 39 percent stake.

The simplest approach would be to propose additional behavioral remedies tough enough to please the CMA, which could then be unwound when Disney takes control. The CMA itself has raised the possibility of a temporary fix as a way forward. The risk for Murdoch is that he'd be stuck with those remedies if the Disney deal fails.

For Sky shareholders, there's more certainty now that they'll get an offer they can actually accept at some point. Murdoch knows what to do if he really wants to buy the rest of Sky this year. Disney -- which may yet be forced by the U.K. takeover authorities to bid -- knows it wouldn't face major objections if it made its own offer. Hence Sky shares gained on Tuesday.

Assuming a viable deal structure can be found, the real battle can then commence: Shareholders have to decide whether the price is good enough.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

To contact the author of this story: Chris Hughes in London at chughes89@bloomberg.net.

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