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Fox’s Sky Takeover Delayed as British Government Recommends Further Scrutiny

UPDATED with 21st Century Fox statement

Rupert Murdoch’s attempt to land one of the crown jewels of European media was dealt a major setback Thursday after the British government said that 21st Century Fox’s £11.7 billion ($14.9 billion) takeover of Sky needed to be scrutinized by U.K. competition authorities.

Culture secretary Karen Bradley told Parliament that she was “minded to” have Britain’s Competition and Markets Authority conduct an in-depth investigation into the proposed takeover, which could mean a delay that will force Fox to pay a special dividend for failing to get the deal done in the allotted time.

Citing a report from British media regulator Ofcom, Bradley said that plurality concerns over media ownership warranted the competition authority’s review of the deal. However, the Murdochs scored a win as the Ofcom report concluded there was no evidence to suggest that Sky under Fox’s ownership would not uphold broadcasting standards – meaning that the Fox News scandals in the U.S. did not unduly taint the entire conglomerate.

“The transaction may increase members of the Murdoch family trust’s ability to influence the overall news agenda and their ability to influence the political process, and it may also result in the perception of increased influence,” Bradley said, citing the Ofcom report’s findings. “These are clear grounds whereby referral to a Phase 2 investigation is warranted, so that is what I am minded to do.”

Sky’s share price jumped on the news, reaching £9.96 from £9.58 at start of trading. Fox’s share price inched up in early trading, but there was no major movement.

In a statement, 21st Century Fox said it was disappointed that Bradley did not accept Ofcom’s recommendation that pledges to maintain the independence of Sky News were enough to offset concerns about political influence. It also asserted confidence that the deal will close by June 30, 2018.

“While we welcome the Secretary of State’s decision on broadcasting standards, we are disappointed that she does not accept Ofcom’s recommendation stated in its report that….the proposed undertakings offered by Fox to maintain the editorial independence of Sky News mitigate the media plurality concerns,” Fox said.

Bradley stressed that the media regulator’s report found no grounds to question whether Sky, under Fox, would uphold broadcasting standards. And she said the report concluded that issues relating to Fox News in the U.S. would not undermine Sky’s commitment to fair news coverage in the U.K.

In a separate but related report, Ofcom assessed whether Sky would be a “fit and proper” owner of a broadcasting license as part of a larger entity, which also addressed questions about Fox’s U.S. news operation. “We have received a number of submissions asserting that conduct at Fox News would render Sky unfit to hold a broadcast license in the event of a merger,” Ofcom said in the report. “The allegations that have been put to us about sexual harassment at Fox News are of an extremely serious and disturbing nature.”

But “it is not our role to investigate the accuracy of the claims,” Ofcom said. “There are a number of ongoing court cases in the U.S. concerning the veracity of some of the allegations made. These could take some years to conclude.”

Bradley emphasized that her decision for a further review by the Competition and Markets Authority was not yet final. She has given Fox and other interested parties until July 14 to submit responses to her stated intention to send the deal to the authority.

But the announcement that she is inclined to do so is clearly a blow to Murdoch and Fox, especially after the European Commission and authorities in Ireland already gave the deal the green light. A review by Britain’s competition authority would probably take several months, making completion of a takeover of Sky during 2017 unlikely.

The deal would allow Fox to buy out the nearly 61% it does not already own of Sky, Europe’s biggest pay-TV provider, which operates in the U.K., Ireland, Germany, Austria, and Italy. Murdoch has been seeking full control of Sky for years.

Tom Watson, deputy leader of the opposition Labour Party and a critic of the deal, told lawmakers that he expected the deal would ultimately go ahead with some minor conditions attached. He accused the Conservative-led government of wanting to push through the deal but now being unable to do so only because the Conservatives lost their majority in Parliament in an election earlier this month.

“This merger will go ahead,” Watson said. “This is a company guilty of significant corporate failure, but still it can go ahead.”

Some channel operators had expressed concerns about the deal. During a high-profile dispute over carriage of its channels on Sky in the U.K. and Germany, Discovery said it was concerned that the “incentive to disadvantage independent TV content providers [would] only increase” in the wake of a Fox-Sky deal.

Murdoch, his sons James and Lachlan, and Fox have tried to make the Sky takeover more palatable to U.K. authorities since their last attempt foundered amid Britain’s phone-hacking scandal in 2011. In 2013, News Corp. separated its newspaper and publishing and TV assets, with the TV assets mostly contained in 21st Century Fox.

More recently, the late Fox News chief Roger Ailes stepped down in the wake of sexual harassment allegations and an ensuing scandal that was seen as possibly detrimental to Fox’s Sky bid. Another potential Fox News-related problem was made to go away when host Bill O’Reilly was forced out, also after allegations of inappropriate behavior. One of the women who accused O’Reilly of harassment traveled to London to meet with Ofcom officials and express her opposition to the Sky takeover.

Fox lobbyists have also reportedly met with lawmakers from Britain’s two major parties to thwart any political opposition to the deal.

Cynthia Littleton contributed to this report.

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