June 01, 2017 | Media | Europe | Ended

Sky / Twenty-First Century Fox: Public Interest and Fit and Proper Analysis

Permutations of outcomes shortly after 20-Jun-17 can dramatically shift the timing and deal completion expectations of Sky / 21st Century Fox. A logical hypothesis is that, assuming a continuity of government on 9-Jun-17, around a month after receiving reports from Ofcom and the CMA, in July 2017, the Secretary of State will issue a statement of no concern on public interest or will consider undertakings in lieu (UILs) of a CMA Phase II review that will involve minor internal structure changes such as the creation of an independent Sky News board, and corporate governance and editorial committees. Conversely, risks are that the Secretary of State errs on the side of caution and refers the deal on concerns related to Fox and Sky’s “genuine commitment” to broadcasting standards, stemming from the post-deal ownership structure and the Murdoch family’s potential influence on Sky News’ editorial content. The wild card is Ofcom’s fit and proper assessment, but the regulator will not likely act on unsubstantiated allegations against Fox News. That said, we cannot rule out that Ofcom requires more time to investigate Fox’s shortfalls or conducts another test during the lifetime of the deal should new material evidence arise. In this note, we look at what will drive the deal, including a close examination of: the timing of events surrounding the submission of reports to the Secretary of State on 20-Jun-17; the impact of the upcoming UK General Election; what Ofcom will consider in its public interest and fit and proper investigations, based on precedents; the allegations at Fox News and the impact of US federal investigations; Fox's likely UILs and responses; and, dividend and trading considerations.

Contents 1. UK Regulatory Review: Roles, Responsibilities and Process Public Interest Test 2. Media Plurality Considerations 3. Broadcasting Standards Considerations 4. Outcomes; Will Fox Offer UILs or Fight a CMA Phase II? 5. Timing; Upcoming Steps Fit and Proper Test 6. Fit and Proper Considerations 7. Outcomes; Are Sky and its Affiliates “Fit and Proper”? 8. Timing; Upcoming Steps Summary 9. All-Encompassing Regulatory Timing and Estimated Effective Date 10. Updated Break Prices; Trading and Risk Arbitrage Considerations Appendices A. Legislative Framework B. Ofcom’s Broadcasting Code C. Summary of the Fox News Allegations; Federal Investigations (45 pages)

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