BSkyB faces big ITV bill

The government is forcing BSkyB to sell half of its ITV stake. The Murdochs will not be amused…

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Last Updated: 31 Aug 2010

John Hutton, the Secretary of State for Business and Enterprise, has given his backing to a ruling by the Competition Commission that Sky should be forced to reduce its holding from 17.9% to less than 7.5%. Hutton said the forced sale would ‘address the substantial lessening of competition’ by diminishing Sky’s influence – at the new level, it won’t be able to block shareholder resolutions or take a seat on the board (not that it had one anyway, to be fair).

It’s a sizeable blow to Sky, which is in line for a heavy loss on the stake it bought for £940m in November 2006. ITV’s share price has since tanked, falling by almost half, so if Sky is forced to sell at the current price (it opened at 73p this morning) it would suffer a loss of more than £250m. Let’s hope that blocking the Virgin/ NTL takeover was worth it...

There was one silver lining: the government has agreed to Sky’s request not to publicise the deadline for the sale. And you can see why it’s so keen to keep this quiet – if it was forced to dump the stock within a month, it would have no chance of getting a fair price. In fact, the situation would just create a false market and drive ITV’s share price down even lower.

But with press reports suggesting that the government has in fact imposed a nine-month deadline (apparently ITV was pressing for just three, so it could have been worse), Sky has just four weeks to launch an appeal. Our guess is that its lawyers are sharpening their knives even as we speak...

One thing’s for sure – it’s certainly not going to improve the Murdochs’ opinion of regulators, who are just about their least favourite people. And to some extent you can’t blame them. The Communications Act of 2003 - brought in by Hutton's own government - permitted Sky to take a stake of up to 20% in a rival broadcaster (it was even dubbed 'the Murdoch clause'). So if Sky played entirely by the government's own rules, why on earth should it be penalised so heavily because the regulator decided afterwards that the rules needed changing? Hutton may live to regret taking this one on.

James Murdoch, who bought the stake, has since left the Sky hotseat to take command of his father’s News Corp empire in Europe and Asia. But we imagine that his new staff will be tip-toeing around him very carefully this morning...

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