Rupert Murdoch at crossroads as he plots next move in Sky takeover

Offering concessions will make his takeover bid less attractive or gambling to get through review

Rupert Murdoch faces a tough choice over the next two weeks: Offering more concessions that will make his $15.2-billion bid for UK pay-TV broadcaster Sky Plc slightly less attractive, or gambling that he can get it through a perilous six-month regulatory review.
 
Both options have drawbacks. Culture Secretary Karen Bradley has already rejected proposals from Murdoch’s 21st Century Fox Inc intended to safeguard editorial independence at Sky News once the US company takes full ownership and increase its financial commitment to the operation.
 
Strengthening those measures would cost Murdoch money and post-deal influence.
 

The alternative is sending it back for a full review by the Competition and Markets Authority of the deal’s impact on media concentration and the Murdochs’ political clout — a process that would give their many opponents more time to look for material that could damage the its chances.

 
That road is less predictable, strewn with legal pitfalls from cases working their way through US and UK courts, and political risk that Bradley’s Conservative Party gets replaced by an administration that’s less sympathetic.
 
“You don’t want to go to CMA phase 2 unless strictly necessary,” said Sarah Simon, an analyst at Berenberg in London. “The longer the thing is open, it creates the risk that some evidence could emerge.”
 
Bradley has until July 14 to decide whether to clear the 11.7-billion euro transaction or ask the CMA to conduct a deeper review. She has given Murdoch an opportunity to strengthen his proposals by better insulating Sky News’s editorial board from Fox’s influence or lengthening Fox’s offer to continue investing in the news operation beyond five years.

 
Yet Bradley said she’s mindful that behavioral remedies can be difficult to monitor and enforce.
 
Any undertakings from Fox would ideally go beyond mitigating public-interest concerns around media concentration and “fully remedy” them.
 
Fox, which already owns about 39 per cent of Sky, declined to comment on its negotiating strategy, the lawsuits or a UK Office of Communications report that found a “grave failure of corporate governance” at its Fox News operation in the US The New York-based film and television company pointed to comments it made on June 29, saying it was disappointed Bradley didn’t accept its offer regarding media plurality, and that it was “pleased that Ofcom recognizes that Sky under full 21CF ownership would remain a fit and proper holder of broadcast licenses.” Sky didn’t respond to requests for comment.

 
Fox, Sky and Murdoch’s News Corp compete with Bloomberg LP in providing financial news and information.
 
In the event of a CMA referral, Fox would face the near-term risk that the Conservative Party’s minority government, built on an alliance with the Democratic Unionist Party, becomes unmanageable, which could prompt a fresh general election. Should the more anti-Murdoch Labour Party — which leads Conservatives in the latest polling —come to power, Bradley wouldn’t be making the final ruling.
 
Deal opponents, including prospective Liberal Democrat leader Vince Cable and former Labour leader Ed Miliband, are already considering calling a non-binding vote on the bid, which would stoke public opposition and add to the pressure on the Conservatives. Avaaz, an online political advocacy group, said it may seek a judicial review if the deal is cleared.

 
“Six months is a long time in politics, but also in the corporate world,” said Mathew Horsman, an analyst at Mediatique who expects the deal to get referred to the CMA but ultimately be cleared. “Any number of things could happen.”
 
Ofcom, as part of its fit-and-proper review, said it found “deeply disturbing” allegations of racial and sexual harassment at Fox News. Any fresh evidence suggesting senior executives at the parent company were aware of the accusations and failed to act would be considered as part of the regulator’s ongoing duty to assess whether Sky remains a fit and proper media owner under Fox.

 
A key part of the ruling in favor of Fox was Ofcom’s view that senior managers including Murdoch and his sons James and Lachlan, the parent’s respective chief executive officer and co-chairman, were unaware of allegations at Fox News prior to July 2016, when a former anchor sued the division’s then-CEO, Roger Ailes, for sexual harassment, and couldn’t be blamed for failing to act previously. 
 
“I can assure you that the veracity of that statement will be probed in our current litigation,” said Douglas Wigdor, who represents close to two dozen employees and former employees suing Fox in the US

 
Even if new information is unearthed, the bar for an unfit and improper finding is high. Freedom of expression is so important, Ofcom said, that a company with a record of compliance with broadcasting standards would have to commit “egregious” conduct elsewhere “to raise fundamental questions about their integrity as a broadcaster.”
 
Ofcom’s report drew attention to allegations at Fox News such as women being told they needed to perform sexual favors to get promoted, and being asked to display themselves to senior executives.
 
‘Dirty’ Talk
 
The regulator also objected to Fox’s characterization of some employees’ misconduct. The company told Ofcom there was a continuum of behavior going from “appalling sexual harassment” to “regular dirty old man talk,” according to the regulator. Ofcom said the language tended to “downplay the harm caused” and “diminish the victims.”

 
Still, Ofcom lacked evidence that there was misconduct at the top of 21st Century Fox. “We cannot reasonably conclude that were Sky to be wholly owned by Fox, Sky would not in future properly investigate and resolve misconduct, and take measures to prevent it from recurring,” Ofcom said.
 
The public furor over allegations of sexual harassment at Fox News began last summer with the suit against Ailes, the Fox News founder who was forced to resign in July 2016 amid mounting allegations that he had made unwelcome sexual advances toward multiple on-air personalities. Ailes died in May.
 

Fox says the case was immediately escalated to its general counsel and investigated. Those events were followed by allegations against star commentator Bill O’Reilly, who left the channel in April of this year.
 
NY Probe
 
Federal prosecutors in New York are also investigating whether executives at 21st Century Fox broke the law in the way they accounted for secret settlement payments to female employees who made sexual harassment claims. The probe was disclosed in open court by a lawyer representing a witness who was summoned to appear before a grand jury impaneled to review the evidence.
 
Wigdor’s class-action suit involves allegations of sexual and racial harassment. A Fox News radio reporter separately claimed she was fired within 24 hours of emailing the company’s independent investigator to complain about gender discrimination. There are also allegations that Fox News operatives broke into the personal computer of former Fox News host Andrea Tantaros and planted surveillance software used “to intimidate, terrorize and crush her career.” Fox News has called the lawsuit a “hoax.”

 
Phone Hacking
 
In the UK, there’s also a lingering civil case that dates back to Murdoch’s previous attempt to acquire Sky, which was derailed in 2011 amid a phone-hacking scandal. Ofcom said it would consider any new evidence against News Corp.’s UK publishing unit as part of its ongoing duty to assess fitness and properness. A trial is scheduled for October.
 
The case was brought by dozens of people who say their voicemail was illegally intercepted by tabloid journalists at the defunct News of the World and at the Sun. Fox split off from News Corp. in 2013.

 
In its December bid, Fox proposed acquiring the 61 percent of Sky not already owned for 10.75 pounds per share. Sky was little changed on Monday at 9.98 pounds, 7 percent below the offer price. Fox rose less than 1 percent to $28.52 in New York.