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Could the Fox / Sky Merger attempt be blocked by Ofcom?

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Could the Fox / Sky Merger attempt be blocked by Ofcom?

Rupert Murdoch’s '21st Century Fox' has made another attempt to take over the broadcasting media giant, Sky.

Mr Murdoch already owns a 39 per cent stake in Sky, and his son - James Murdoch - was appointed chairman of Sky earlier this year.

It is reported that Mr Murdoch’s takeover bid to acquire the remaining 61 per cent in the company is valued at £18.5 billion, offering £10.75 per share.

Similar mergers have occurred in recent times - multinational media and entertainment company, Time Warner merged with telecommunications conglomerate AT&T, earlier this year - however this merger has previously been halted by broadcasting regulator Ofcom, in 2011. This new deal is subject to the regulators authority once again should culture secretary Karen Bradley pass the deal on for assessment.

What has prompted the merger?

The share price in Sky has dropped in recent years, and coupled with the value of sterling dropping in recent months, Sky is now more attractive than ever. Fox has not waited long in acting to obtain the potential target for growth.

Sky has more recently seen greater competition emerge in the UK from the BT Group in its challenge in the television-broadcasting sector with its newly available pay TV Sports packages. The merger combination with Fox will attempt to combat the competitive effect of BT.

Rupert Murdoch’s previous attempt at the merger was thwarted by parliament shortly after the phone hacking scandal involving the News of the World newspaper, owned by Mr Murdoch. Allegations as to his business ethics and practices have tainted the businessman's reputation ever since.

However, this will not be the only concern for the regulator, Ofcom, who will be obliged to consider the potential ramifications if the merger were to go ahead.

Will Ofcom Obstruct Murdoch’s plans?

If we are to assume that the takeover is to go ahead, then it will be for the culture secretary, Karen Bradley to decide within 10 days, whether or not a 'public interest test' is triggered. Then she will pass the deal over to Ofcom for review.

Ofcom are the regulatory body for TV, radio, on demand video, telecoms, mobiles, postal services and wireless airwave communication. They have a wide range of legal duties within the UK, principal among which is to further the promotion of competition whilst considering the interests of the public and consumers. Therefore, it is Ofcom who are the regulatory body that will carry out the initial investigation into the merger and its effect.

Ofcom will be required to consider section 58 of the Enterprise Act 2002, which concerns the plurality of persons with sufficient control of media enterprises.

When Ofcom have conducted their investigation they will produce a report on its assessment. It will then be decided whether the case should be referred to the Competition Commission to further assess the merger.

Getting the right advice

Mergers have many different potential outcomes for the businesses involved. This is why it is highly important to consider every possible effect if companies are to go ahead with the transaction.

As well as having specialist knowledge in the process of mergers. Stephensons’ corporate solicitors have an extensive experience in guiding companies through the transaction, whilst considering the commercial and regulatory implications that may affect the future running of the business.

For more on company mergers, the requirements of the regulatory bodies that may need to be considered for your particular merger, or if you are thinking on embarking on the merger process yourself, please contact Thomas Baker in the commercial law department.