Analysis: Murdoch move lifts cloud from BSkyB deal

LONDON Thu Jul 7, 2011 3:06pm EDT

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LONDON (Reuters) - The sudden closure of the UK tabloid at the heart of a phone-hacking scandal should lift a cloud hanging over Rupert Murdoch's planned takeover of British broadcaster BSkyB (BSY.L).

Murdoch's News Corporation (NWSA.O) said it would close the mass-selling News of the World after being rocked this week by a long-simmering phone hacking scandal, which exploded with allegations that the eavesdropping stretched to missing children and families of soldiers killed in action.

Although the government argued the two issues had to be treated separately, there has been a rising chorus of calls for the deal to be blocked. The scandal was also becoming increasingly embarrassing for the government, long accused of being too close to Murdoch.

"We see it as something to restore or remedy a tarnished reputation for the News Corp group," said Stephen Adams, fund manager at Aegon Asset Management, and a top 10 shareholder in BskyB. "But we also critically see it as reflection of New Corp's desire to progress the BskyB bid and have full ownership of the company."

The revelations have prompted the Prime Minister to express his "disgust" at events while lawmakers from all sides have taken to the floor of parliament to denounce the company and its influence.

One banker who advises European media companies said it may still not be enough to ease public anger over the scandal.

"There will still have to be some executive scalps," he said.

It is important to note that the Conservative-led government and the minister in charge of the case, Jeremy Hunt, have already given their backing to the BSkyB takeover, subject to a final short consultation that ends on Friday.

"Jeremy Hunt and his team have looked at this in detail and are quite convinced that there is no legal route to connect anything happening at the News of the World with News Corporation's purchase of BSkyB," media consultant Steve Hewlett told Reuters.

Hewlett said any attempt to block the deal at this late stage would likely spark a legal challenge from News Corp, and one the company would likely win.

A delay is likely, "but they can't delay it forever so barring some major development this deal is going to get agreed," he said.

GROWING OPPOSITION

The government has received over 135,000 public complaints against the deal, with critics arguing the full takeover of BSkyB would give Murdoch too much power and influence over public opinion.

The sheer number of responses will take weeks to consider, meaning that the deal will not get the final green light until after Parliament breaks for recess later in July.

A spokeswoman for the government said they had never had a timetable for approval but said Hunt could approve the deal even during the parliament break. The investigation has already been running for more than a year.

"I think it is very likely that the government will delay its final decision until after summer recess in the hope that public anger dies down," said a banker, who advises European media companies.

Simon Holmes, a competition partner at SJ Berwin, told Reuters the government was examining the case on whether it would reduce the number of 'media voices' in the country and could not be seen to be swayed by the hacking allegations.

"It does have some wiggle room in terms of the timing though," he said. "It took three months to consider the representations after the last consultation and it may be the same again."

Markets were spooked on Wednesday by a statement from Britain's broadcasting watchdog Ofcom that it would ensure that any future holder of a broadcast license was "fit and proper," in light of the phone hacking case.

But lawyers and analysts point out that this rule is very difficult to apply and there is no set definition on what 'fit and proper' means.

"In reality the chance of any government or regulatory interference in the deal is very slim," said one special situations analyst. "You couldn't rule anyone being not fit and proper without criminal charges (against individuals)."

Even with criminal charges, it would still be very difficult to pin something on News Corporation, the company.

"All you have to do is move the individuals," consultant Hewlett said.

"This bid is by News Corporation, it's not newspaper arm News International and it's not the News of the World. It's the wrong corporate. Making the link would be impossible."

(Reporting by Victoria Howley and Kate Holton additional reporting by Sinead Cruise; Editing by Chris Wickham)

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