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21st Century Fox’s $15 Billion Sky Deal Faces a Defining Two Weeks

James Murdoch says he is confident 21st Century Fox’s proposed takeover of Sky will be approved, but not until 2018 – leaving his company on the hook for a hefty financial penalty on top of the $15 billion it is shelling out for the pan-European pay-TV service.

Under the terms of the takeover, Fox must pay a 10p-per-share special dividend to Sky shareholders if the acquisition does not close before year-end, meaning a payment of about £171 million ($222 million). Of that amount, £66.3 million would be cancelled out as Fox already owns 39% of Sky. The rest would go to Sky’s independent shareholders. An additional £200 million payment is due if the deal falls through.

Fox has unsuccessfully lobbied the British government for a speedy resolution to its scrutiny of the proposed takeover of sky, not least because of the potential cost if there are further delays. Murdoch’s stated confidence in the deal’s eventual approval came as regulators take another look at the agreement and, separately, investigate whether a Fox News broadcast shown on Sky in the U.K. broke impartiality rules.

“The transaction has been cleared in all of its markets except for the U.K., where the process is still underway and where the U.K. regulator, Ofcom, concluded that the concessions we offered mitigated its morality concerns and further was unequivocal about our commitment to broadcasting standards,” Murdoch told analysts Wednesday in the wake of Fox’s fourth quarter results. “We remain confident our transaction will be approved but more likely in the first half of 2018 than before the end of this calendar year.”

Ofcom is, separately, investigating Fox News. Although that move is not directly related to the Fox-Sky deal, the conduct of Fox News is increasingly under the spotlight, and is being linked to the proposed takeover. The news network is carried on the Sky platform in the U.K., where its viewership is small. Ofcom told Variety it is looking into a complaint about “Tucker Carlson:Tonight,” shown in May and allegedly containing statements criticizing the British government’s response to the terrorist attacks that hit Manchester and London. “We are investigating whether this current affairs program breached our rules on due impartiality,” a spokesman said.

The government this week asked Ofcom for clarification regarding new evidence that has surfaced since Culture Secretary Karen Bradley said last month that she was inclined to wave through parts of the deal relating to broadcasting standards and whether the Murdochs are “fit and proper” owners of a combined Fox-Sky.

Neither Bradley’s media department or Ofcom will say what the new evidence is, but sources said it was likely related to a U.S. lawsuit concerning Fox News’ reporting of the death of Democratic National Committee staffer Seth Rich. Opponents of the Sky deal have said that case should prompt the government to re-examine the takeover.

A cross-party group of British lawmakers, including former Labour Party leader Ed Miliband and Liberal Democrat leader Vince Cable, have written to Ofcom and Bradley claiming the new Fox News developments are reason to look again at the broadcasting standards question. Lawyers for Rod Wheeler, who has a complaint against Fox News, have also applied pressure, as have activist groups Media Matters and Avaaz, noting the allegations against Fox cover a period in which it claimed to be cleaning house.

Avaaz has been critical of Ofcom’s report to Bradley, saying it “failed to do its job,” and has already threatened legal action against the government.

Ofcom denies that its initial probes were flawed, or that the British government is suggesting that. The details of the evidence it has been asked to re-examine will be made public, but sources say that is unlikely to happen before the deadline set for the regulator to report back to government on August 25. For Fox and Sky, the next two weeks will go a long way toward deciding the fate of their $15 billion deal, and the price tag attached to any further delays.

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