BSkyB ordered to cut ITV stake to below 7.5 percent

LONDON (Reuters) - Britain has ordered BSkyB to cut its stake in rival broadcaster ITV by more than half, in a ruling which would cost the country's dominant pay-TV firm about 250 million pounds ($496 million) at current prices.

The government ruling is its final decision on the controversial purchase, which pitted the Murdoch family against Britain's most famous entrepreneur, Richard Branson, and drew condemnation from rivals and legislators alike.

The Secretary of State for Business and Enterprise John Hutton said BSkyB should reduce its 17.9 percent stake to below 7.5 percent because the purchase was anti-competitive.

He also ordered BSkyB not to sell the shares to an "associated person", nor to seek representation on the board of ITV and said it could not reacquire its shares.

But Hutton said he would not disclose the time period given to BSkyB for the sale, following a request from the company. Sky has four weeks to decide if it wants to appeal to the Competition Appeal Tribunal. Any appeal could take months.

"ITV warmly welcomes the Secretary of State's decision," said the broadcaster. "We believe this decision is in the best interests of the overwhelming majority of our shareholders."

The ruling could cost BSkyB around 250 million pounds if it sold at the ITV share price on Tuesday morning, since the value of the shares has dropped since the purchase.

Shares in ITV were initially up 3 percent before easing to trade 1.8 percent higher at 73.3 pence at 1000 GMT. Shares in BSkyB were up 1 percent at 536.5 pence.

BLOCKING STAKE

BSkyB paid 135 pence per share, or 940 million pounds, for its stake in ITV in November 2006, in a move which effectively blocked cable group NTL -- now part of Virgin Media -- from buying ITV.

The move prompted a slanging match between the two sides, with Virgin Media's largest shareholder Branson labeling Sky and the Murdochs a threat to democracy.

Rupert Murdoch, who stood down as BSkyB chairman last year, said politicians had chickened out by giving the case to the Office of Fair Trading and media regulator Ofcom to examine.

Murdoch also pointed out that BSkyB had acted within the ownership rules in the Communications Act which states that BSkyB could not own more than 20 percent of ITV due to its other media interests.

But analysts say the News Corp. controlled broadcaster is likely to have succeeded in preventing Virgin Media from buying ITV for now, due to the market environment.

Other possible buyers linked to ITV have previously included RTL Group, Europe's largest commercial broadcaster, which owns Channel 5 in Britain. RTL Chief Executive Gerhard Zeiler said in February that ITV would fit with its group.

James Murdoch, who was BSkyB chief executive at the time of the ITV swoop and is now non-executive chairman, said in November that there was no plan to swap the stake for Channel 5.

Hutton said he had decided to impose the remedies recommended by the Competition Commission to address the "substantial lessening of competition".

BSkyB had offered to put all its ITV shares in an independent voting trust which would have complete freedom over voting decisions, but the government decided this would need continual monitoring.

BSkyB is already facing two other regulatory probes this year, on its plans for a new digital TV service and a wider pay-TV inquiry, and analysts at Citi questioned whether BSkyB may decide it is tactically more sensible to accept the decision.

(Editing by Paul Bolding, Elizabeth Fullerton)