BSkyB shares hammered in NotW phone hacking fallout

This News of the World scandal and closure has clearly served to make an already unpopular bid even more unpopular. Can News Corp see it through?

by James Taylor
Last Updated: 19 Aug 2013
News Corp's bid to take full control of BSkyB was never going to be straightforward - as well as the challenge of stumping up enough cash to persuade shareholders, it's also had to deal with a very vocal lobby of opponents desperate for Rupert Murdoch not to get even more control of the UK media landscape. But just when it seemed to be winning the political battle - Culture Secretary Jeremy Hunt was widely expected to wave the deal though - the growing scandal around the News of the World's phone-hacking which led to today's demise of the paper has changed the game completely. Opponents are now calling for the deal to be blocked under the 'fit and proper' owner test, even if it passes muster with the competition regulator. So it's no wonder the BSkyB share price fell today...

Hunt had previously indicated that he was willing to give the deal the green-light, as long as News Corp agreed to spin-off Sky News and introduce various other safeguards - at which point the only issue would have been whether News Corp could come up with a big enough bid. However, that was before it emerged that the News of the World hasn't just been hacking the phones of celebrities and footballers, but also the friends and families of dead soldiers and murder victims. Not surprisingly, some people argue that an organisation that allows this kind of despicable behaviour doesn't pass the 'fit and proper' owner test required by media regulator Ofcom.

And since launching his latest consultation last week, Hunt has apparently (according to the BBC's Robert Peston) received about 10,000 submissions, most of which are against the deal. Just reading all this stuff will take weeks (although as Peston points out, that's no bad thing, since it will allow the dust to settle a bit). [EDIT: The Government now says there'll be no decision until September].

It seems hard to believe that News Corp would actually fail the 'fit and proper' test - since it generally applies to individual directors, and it'll surely be very hard to prove that the organisation as a whole is legally accountable for the actions of individuals at one of its many papers. But it's going to make life difficult, if not impossible, for News International boss Rebekah Brooks, who was editor of the Screws at the time of some of these alleged misdemeanours. And if nothing else, with some kind of regulatory or political intervention a lot more likely than it was, BSkyB shareholders will be looking for News Corp to pay a much fatter price by way of a risk premium.

But will BSkyB care? In truth, it's very hard to see how much value it would have gained strategically from the News Corp takeover. OK, so there was the opportunity for cross-promotion on Murdoch's other channels, but that's something it could have under the current arrangement too. So while BSkyB’s investors won't enjoy watching the share price slide in value today, we can't help feeling that the company's management won't be too disappointed that a deal still looks a long way off...And, in the meantime back down in Wapping there will be a seven day Sun operation to get up and running.

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