(Bloomberg Gadfly) -- Rupert Murdoch's ambition to take full control of Sky Plc has hit a major setback. The proposed takeover of the British satellite broadcaster by the media mogul's Twenty-First Century Fox Inc. is suddenly facing a much tougher regulatory review. The chances of the deal happening have diminished.
On Tuesday, Culture Secretary Karen Bradley executed something of a u-turn: She said she's minded to ask the U.K.'s competition watchdog to scrutinize the bid's impact on broadcasting standards, not just its impact on media plurality.
Any flip-flop creates a sense of regulatory uncertainty. But this is particularly significant. Until now, many saw the path to completion as reasonably clear. The Competition & Markets Authority would do a lengthy economic study of the U.K. media landscape. That would lead to some proposed tweaks to the transaction structure that Fox would probably tolerate to get the deal done.
If Bradley makes the CMA consider broadcasting standards too, the outcome is harder to envisage. This is not the normal territory of a watchdog more accustomed to doing scenario analyses on the impact of industry consolidation.
What's more, if the CMA ends up blocking the deal on the grounds of standards, remedies might not be so straightforward. Would it require Sky to be put into a blind trust and become a non-controlled subsidiary? That might be too much to swallow both for Murdoch and for Fox's ordinary shareholders.
Fox now faces a detailed review of its corporate governance. That will not be an enjoyable experience, even if the outcome is owning all of Sky. But whatever pressure Murdoch is feeling, he cannot pull the deal voluntarily as he did in 2011 amid the tabloid phone-hacking scandal. He has made a formal offer and has to stick by it. Plus, he has the agreement of Sky's board -- that's worth a lot to him.
Despite the setback, Sky shares recovered most of their initial 5 percent drop on the news. Perhaps investors were relieved Bradley didn't block the deal outright -- the shares had already fallen 4 percent in the last two months. At 937 pence, they are halfway between Murdoch's 1,075 pence bid price and the 800 pence analysts think they could fall to without a deal. That's a very crude way of saying the odds are 50:50, at best. It's hard to disagree.
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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.