July 11, 2011 / 2:24 PM / 6 years ago

Lawyers see major hurdles to blocking BSkyB deal, delays

LONDON (Reuters) - British regulators could struggle to find new grounds to halt a proposed takeover of pay-TV broadcaster BSkyB by Rupert Murdoch's News Corp media empire, but lawyers say the multi-billion-dollar deal may face severe delays.

The UK government on Monday asked the Office of Fair Trading (OFT) consumer watchdog and media regulator Ofcom to review its guidance on News Corp's planned $14 billion takeover of BSkyB in light of a phone-hacking scandal at one of News Corp's papers.

The OFT and Ofcom, composed of lawyers and industry experts, looked at the deal originally in terms of whether it would reduce the number of 'media voices' in Britain. They gave their approval after accepting a host of undertakings from News Corp aimed at limiting its influence.

But that was before a slew of revelations that journalists -- and possibly senior editors and executives -- sanctioned or were aware of illegal access of phone messages and payments to police.

Lawyers said the allegations had not altered materially the competition issues the regulators need to consider.

"As far as the competition issues are concerned, nothing really has changed," said Cyrus Mehta, head of the EU and Competition group at law firm Nabarro, noting this could make it difficult for the regulators to alter their original findings.

Regulatory Pressure

Culture Secretary Jeremy Hunt has asked the OFT and Ofcom to look at three elements on the deal: whether they should review News Corp's promises to spin off Sky News; if its closure of News of the World newspaper affects News Corp's media power; and, if it is a fit company to be given a broadcast license.

On the first, lawyers said it was difficult to see how the News of the World phone hacking scandal could be linked in any way to the promises News Corp gave on guaranteeing the independence of Sky News.

"The whole idea of undertakings is that they are legally enforceable," said one lawyer, who declined to be named.

Most legal experts also dismissed the idea that the closure of the News of the World would affect media plurality.

"The whole argument that the market is smaller seems to me foundless," said Rosemary Choueka, Head of EU, Competition and Regulation at Lawrence Graham.

However, even if Ofcom and the OFT did not change their recommendations, many lawyers nevertheless suggested that Hunt would be under immense pressure to find some way to refer the deal to the Competition Commission given the political furor over the phone-hacking scandal.

"I think he is at risk if he doesn't refer this to the Competition Commission of facing a judicial review," said one.

A Competition Commission investigation into the deal could take over a year.

Hunt knows he is walking a tricky political tightrope, not least because his own role in sanctioning the deal came under fire because of comments he made, before he was put in charge of sanctioning the deal, that suggested he saw no reason for it not to go through.

Fit and Proper

More complex is the role Ofcom plays in determining whether a broadcast owner is "fit and proper," an area fraught with uncertainty.

Ofcom CEO Ed Richards is a former head of corporate strategy at the BBC and a senior adviser to Prime Minister Tony Blair. He is not shy of confrontation, having clashed many times with BSkyB and others.

However, the vagaries around defining who should be allowed to run the UK's broadcasting companies will present a huge challenge to the lawyers and industry experts who work from Ofcom's headquarters on the banks of the Thames.

"There is no definition of what "fit and proper" person means," said Choueka. "There have never really been any instances where Ofcom have looked at this in any great detail."

Ofcom would have to "demonstrate the links between the people running News Corp and the people involved in phone hacking," Choueka said -- a tough call without a conviction.

"If they had a criminal conviction against a director that would be one thing, but saying there's a bit of a cloud over News Corp is another."

Ofcom has said repeatedly it wants to wait until the outcome of a police investigation into the scandal at News of the World before it makes a decision on whether News Corp directors are fit to run Sky.

Jenine Hulsmann, partner at lawyers Clifford Chance told Reuters television she believed the deal would succeed: "To date, Newscorp have shown they are willing to do what it takes to acquire BSkyB. I'd be surprised if they can't find a way through this."

Created by Jodie Ginsberg

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