News Corp's BSkyB Bid Faces Legal Challenge

(c) Sky News 2011

A potential legal challenge could derail News Corporation (NasdaqGS: NWS - news) 's efforts to bid for full control of BSkyB (LSE: BSY.L - news) .

An alliance of five newspaper groups and BT (LSE: BT-A.L - news) has rejected News Corp proposals, which are aimed at satisfying concerns that Rupert Murdoch's media empire would have too strong a voice in the UK industry.

They have hired lawyers who will be "looking for holes in the detail" of the plans, competition law expert Simon Holmes told Jeff Randall Live.

Under the proposals approved by the Culture Secretary Jeremy Hunt, Sky News would  become an independent public limited company, effectively "spun off" from the rest of BSkyB if News Corp's takeover is approved by shareholders.

It would have an independent board but News Corp would retain a 39% stake in the news provider.

News Corp would also have to fund Sky News under a "10-year carriage ensure its financial viability".

According to sources of Sky's business presenter Jeff Randall, former City minister Lord Myners has already expressed an interest in becoming the board's first chairman.

Lord Myners has, however, rejected the claim as "nonsense".

The Culture Secretary's decision means there will be no referral to the Competition Commission for an inquiry as things stand.

The plans are now put out for a public consultation which ends on March 21.

Mr Hunt said: "I believe that these (proposed undertakings by News Corp) will address concerns about media plurality.

"The undertakings....offer (Sky News) more independence from News Corporation than it currently has."

But rival media companies, including Trinity Mirror (LSE: TNI.L - news) and Telegraph Media Group, have described the proposals as a "whitewash" and say they will pursue all legal options.

They say the consultation period will be "brief but bloody".

The media alliance said: "The proposed undertaking is pure window-dressing.

"It has been well-documented by former Murdoch editors that arrangements of this kind, including those put in place to protect the independence of The Sunday Times and Times, have proved wholly ineffective.

"Smoke and mirrors will not protect media plurality in the UK from the overweening influence of News Corporation."

While Sky News has an 8% share of the TV news market, the company also produces news for Channel 5 and is also the sole provider of mainstream news to the UK's commerical radio stations.

Other commercial news provision contracts include deals with Yahoo (NasdaqGS: YHOO - news) !, The Times and advertiser JCDecaux.

News Corp owns UK newspapers The Sun, News of the World, The Times and The Sunday Times.

Last June, News Corp made a 700p a share offer for the 60.9% of BSkyB it does not own.

That bid was rejected as too low by the BSkyB board last summer.

BSkyB's share price has reached 820p in today's trading.

In an email to Sky staff, BSkyB chief executive Jeremy Darroch said: "If the acquisition was to take place, I believe that these proposals would represent a good outcome for Sky News.

"In effect, they would maintain the status quo in respect of ownership, with News Corp owning a minority stake directly in Sky News in the same way as it does in BSkyB today."

He continued: "And importantly, Sky News would benefit from long-term continuity and certainty, allowing you all to continue to focus on what you do best: delivering the best possible news service on all platforms."

Last year, the European Commission cleared News Corp's plans, saying a buyout of BSkyB would not "significantly impede" media competition.

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