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Fox-Sky £11.2b deal talks said to hinge on structure of bid

Monday, December 12, 2016 - 07:18

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21st Century Fox Inc and Sky Plc executives worked through the weekend with their advisers to nail down final terms of an £11.2 billion (S$20.2 billion) deal that would consolidate Rupert Murdoch's television empire across two continents.

[LONDON] 21st Century Fox Inc and Sky Plc executives worked through the weekend with their advisers to nail down final terms of an £11.2 billion (S$20.2 billion) deal that would consolidate Rupert Murdoch's television empire across two continents.

Fox's co-chairmen, the 85-year-old media baron and his son Lachlan, have been intimately involved in discussions to purchase the 61 per cent of UK pay-TV service Sky that Fox doesn't already own, according to people familiar with the situation.

Rupert's son James Murdoch, who leads New York-based Fox as chief executive officer and is chairman of Sky, isn't involved in the satellite broadcaster's evaluation of the offer.

While the preliminary agreement announced Friday has the backing of Sky's independent directors, some elements of the transaction remain under discussion. A key decision for Fox is whether to make an outright offer for the 61 per cent of Sky that it doesn't own, or pursue a so-called scheme of arrangement, a structure that would involve UK courts but make it easier to mop up smaller Sky shareholders who refused to sell, said the people, who asked not to be named because the talks are private.

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Friday's announcement was also silent on whether Sky's chief executive officer, Jeremy Darroch, will stay on once the company becomes part of Fox. People familiar with the matter said the question remained undecided but that Fox isn't in a rush to shake up Sky management.

Representatives of Sky and Fox declined to comment.

Sky shares advanced 27 per cent in London on Friday, ending the day at 1,000 pence after the offer was announced. That's below the 1,075-pence offer price, indicating investors see some risk a deal won't be completed. While merger rules allow Fox until Jan 6 to make a final offer, the company is working to sew up a deal by late this week, Wednesday at the earliest, the people said.

More Fox executives were heading to London and principals from both companies will be there over the next few days as they work to seal a final agreement, the people said. They said Fox is unlikely to raise its offer and that no major shareholders have objected to the price, 36 per cent above Sky's close the day before the announcement.

Sky's deputy chairman, Martin Gilbert, is playing a significant role and had been pushing Fox to offer a a substantial premium, according to one of the people.

Mollifying Sky's biggest shareholders by no means guarantees the deal an easy ride. At an October shareholder meeting, a significant minority protested James Murdoch's return this year as chairman, citing board independence and the possibility of a new Fox bid for Sky. The last one was derailed in 2011 by a hacking scandal that preceded James Murdoch's departure as Sky chairman in 2012.

Using a court-monitored scheme of arrangement would lower the bar for shareholder approval, though it's generally more expensive and must be finalized more quickly.

With the court's backing, the scheme would require support from only 75 per cent of shareholders other than Fox, making it easier to squeeze out Sky investors who dissent or don't vote. With a straight offer, Fox would need 90 per cent shareholder approval to acquire all the Sky shares.

Prime Minister Theresa May has been eager to promote investment in the UK in the wake of the Brexit vote, leading some analysts to predict the deal will gain approval. However, the proposal has awakened Mr Murdoch antagonists and resurfaced residue from the hacking scandal, which could become obstacles.

Critics lined up quickly to call on Ms May to scrutinise the new agreement carefully. Memories of the phone-hacking scandal, which shook Mr Murdoch's empire and exposed the seamier side of British journalism, remain fresh. Any move to concentrate media ownership could raise concerns about "plurality" - diversity in the provision of news and entertainment.

"The way Theresa May's government deals with this is a test of their independence from the influence of large proprietors," said Vince Cable, who as business secretary under former Prime Minister David Cameron referred the previous takeover plan to regulators.

"This poses a genuine threat to media plurality in the UK, just as the bid six years ago did."

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