Fifteen months after finally agreeing a takeover of Sky, Murdoch had been edging towards approval by offering remedies to overcome long-held concerns that he holds too much media sway in Britain, where he owns the Sun and Times newspapers.
But Comcast, the owner of NBC and Universal, has made investors a higher offer with no political baggage for a business that Murdoch helped to launch and owns 39 percent of.
Fox has called on regulators to submit Comcast to the same lengthy scrutiny it received, but competition lawyers say it could gain clearance in a relatively fast probe.
Comcast offered 12.50 pounds per share, or 22.1 billion pounds ($31 billion). It has not yet made a firm bid and is sounding out investors through its brokers, BAML, sources say.
It wants to own all of Sky but will accept taking control with 50 percent plus one share if Fox decides not to sell its 39 percent stake. Fox has a separate deal to sell assets to Walt Disney DIS.N, including Sky.
Murdoch agreed to buy the 61 percent of Sky it did not already own in December 2016 for 10.75 pounds per share, valuing the entire business at 18.5 billion pounds.
This followed a failed attempt to buy Sky in 2010, which collapsed when journalists at one of Murdoch’s papers admitted hacking into phones to secure news, sparking a criminal trial, a public inquiry and questions over his role.
LEVEL OF ACCEPTANCE
One person familiar with the matter said Comcast was asking hedge fund managers how much Sky stock they controlled, indicating a belief that Fox will hold on to its stake and setting the stage for a lengthy battle.
UBS said the price could go as high as 1500 pence, driven by the fact Sky has continued to develop its technology since Fox’s bid and last month secured the rights to show Premier League matches for a lower fee than expected, boosting future earnings.
Comcast will need 82 percent acceptance from independent Sky shareholders while Fox is targeting 75 percent, meaning 15 percent of independent investors could block the deal.
COMCAST’S REGULATORY CHALLENGE
Comcast is providing information to the European Commission and believes it can get approval in the so-called Phase 1 of the investigation, avoiding a prolonged process. It could take several weeks before Comcast files a formal notification.
Brussels will examine whether a Comcast-owned Sky could be anti-competitive when dealing with rival channels on its platform and whether there is a threat from putting Sky in the same company as film studio Universal.
The regulator could also consider if Sky would be owned by companies holding three of the six major film studios if Comcast owns 61 percent and Walt Disney retains Murdoch’s 39 percent.
Comcast would argue that were Fox or Disney to retain 39 percent, they would be a financial investor with no commercial or operational link with Sky.
In terms of previous conduct, Comcast was accused by U.S. regulators in 2012 of breaching a condition imposed when it bought NBC Universal, by discriminating against rivals in favor of its own channels when placing them on the program guide.
Comcast says it appealed the decision and the two sides settled in 2014. It also agreed to pay $2.3 million to resolve a federal investigation into allegations it wrongfully charged customers for services they never authorized.
In Britain, Comcast has been involved in some minor breaches of broadcasting rules for airing offensive language, breaking impartiality and advertising rules, and it was sanctioned and fined in 2012 for broadcasting soft porn during the day on a channel that could be watched by children.
Fox has called on regulators to examine all these issues.
But Howard Cartlidge, head of EU and Competition law at DWF, said a larger pattern of offences would need to be proved to force a longer EU investigation: “I don’t see there being significant regulatory hurdles.”
Lawyers do not expect the UK government to launch a public interest test either as Comcast does not own newspapers - the issue that has caused so many delays for Fox.
FOX’S REGULATORY CHALLENGE
The EU cleared Fox’s 2016 bid in a Phase 1 investigation on competition grounds, however British politicians, wary of appearing close to the Murdoch family, have bounced the deal to local regulators on the issue of media plurality and standards.
UK regulators accepted Fox would uphold broadcasting standards, saying that sexual harassment allegations at the Fox News network in the U.S. did not call into question its commitment to standards in Britain.
On media plurality, the Competition and Markets Authority said in January the deal should be blocked unless a way is found to prevent the Murdochs from influencing the network’s news operations.
Fox has since pledged to keep Sky News independent and fully funded for 10 years. Lawyers and analysts said that should be enough to secure regulatory approval.
Fox sees the fact it has almost received regulatory approval as a competitive advantage over Comcast. It is pursuing the Sky takeover because it is part of its larger deal with Disney.
“With Disney now being the ultimate buyer for Sky rather than Fox, we think political opposition to the deal may be easing,” UBS said.
After notification, Brussels has 25 working days to analyze Comcast’s deal during Phase 1. Any offer of remedies could add 10 working days.
For Fox, the UK regulator will give its final report to government by May 1 and a final decision will come by mid-June.
Additional reporting by Ben Martin and Paul Sandle; Editing by Alexander Smith and David Evans
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