Fox merger referred to regulators

Oscar Cross
September 14, 2017

- UK Media Secretary Karen Bradley on September 12 said she was minded to refer Twenty-First Century Fox's bid for broadcaster Sky to the country's competition regulator on the grounds of its commitment to broadcasting standards.

Among specific concerns are that "Fox did not have adequate compliance procedures in place for the broadcast of Fox News in the United Kingdom and only took action to improve its approach to compliance after Ofcom expressed concerns".

In supporting documentation, the British regulatory body Ofcom wrote that 21st Century Fox did not have in place procedures to ensure that Fox News would comply with United Kingdom broadcasting standards until the regulatory body raised concerns.

She also raised concerns about "corporate governance issues".

Bradley gave 21st Century Fox ten working days to respond before the merger is referred for the additional review. It's notable that the referral is against the advice of OfCom, who in a stated: "while we consider there are non-fanciful concerns, we do not consider that these are such as may justify a reference in relation to the broadcast standards public interest consideration".

"Nevertheless we will continue to engage with the process as the secretary of state reaches her final decision", the company said. These, she said, were matters the CMA may wish to consider in the event of a referral.

On Tuesday, however, Culture Secretary Karen Bradley raised concerns as to whether Fox would adhere to broadcast standards. "On the evidence before me, I am not able to conclude that this raises non-fanciful concerns", said Bradley.

The CMA will then have six months to investigate with an extra eight weeks if required. I consider that these non-fanciful concerns do warrant further consideration.

Corporate governance issues, although overlapping on broadcast standards, will be considered by the CMA. She was not confident that weaknesses in Fox's corporate governance arrangements were incapable of affecting compliance in the broadcasting standards context.

Some lawyers and activists have attempted to persuade Ofcom not to approve the deal, appearing before the regulatory body to testify about recent sexual harassment and racial discrimination lawsuits and arguing that those cases are evidence that 21st Century Fox is not a "fit and proper" owner of Sky.

But there has been strong United Kingdom opposition to the merger, largely due to editorial and corporate governance standards at 21st Century's 100% owned Fox TV unit in the U.S., and worries that the deal would "increase influence by members of the Murdoch Family Trust over the United Kingdom news agenda and the political process". Fox has to pay Sky shareholders a dividend of 10 pence a share, or about $220 million, if the deal doesn't close by the end of 2017.

Other opponents of the deal lined up to laud Bradley's announcement.

The biggest risk for Fox, however, is that the investigation pushes out a decision far into next year. Wrongdoing at News Corp.'s United Kingdom newspapers scuppered a 2010 attempt to buy the rest of Sky, while this time, sexual- and racial-harassment allegations at Fox News have given opponents ammunition to slow a deal that initially appeared on track to sail through.

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