Fox-Sky takeover faces new legal hurdle

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21st Century Fox Inc. (Nasdaq: FOXA) faces the prospect of another hurdle in its bid for Sky plc, after a U.K. High Court judge allowed a legal challenge to proceed over whether the pay-TV provider would remain fit to hold a broadcasting license under the control of media billionaire Rupert Murdoch.

Political advocacy group Avaaz, a key opponent of the 11.7 billion-pound ($16.2-billion) takeover, said that it won the right to a judicial review of last year’s ruling by communications regulator Ofcom that Fox would be a so-called “fit and proper” owner of Sky. The case should be heard before the end of June, Avaaz said.

The challenge is the latest obstacle for Murdoch’s bid, which has faced a succession of regulatory and political tests to get clearance. Fox, which already owns 39 percent of Sky, is trying to purchase the remainder and plans to sell the broadcaster to Walt Disney Co. as part of their $52.4 billion asset deal announced in December.

If Avaaz’s legal challenge is upheld, Ofcom would have to re-open its investigation into Fox’s fitness and propriety, a move that could look at the organization’s handling of recent racial and sexual harassment allegations at Fox News in the U.S.

Avaaz argues that Ofcom didn’t adequately scrutinize Fox’s corporate governance record and that it made factual errors in its initial inquiry. Judge Stephen Morris, who granted the permission for the judicial review, said Avaaz’s case is arguable and may raise important points of principle.

If the Murdoch empire is fit and proper to hold broadcasting licenses after massive hacking, harassment and hush money, then virtually anyone is,” Ricken Patel, Avaaz’s chief executive officer, said in the statement. “The Murdochs may believe they are above the law but the court has made it clear Ofcom is not.”

In June last year, Ofcom ruled that there was a high threshold to finding a broadcaster unfit and improper because of the damage to freedom of expression of removing a license. Ofcom said Fox and Sky’s records of compliance were in line with other broadcasters and that, while behaviors alleged at Fox News amounted to “significant corporate failure,” they weren’t enough to rule against Fox.

“We will defend our ‘fit and proper’ assessment, which was independent, expert and based on the evidence,” an Ofcom spokesman said in an email.

Avaaz’s challenge is separate from the regulatory process being conducted by the Competition and Markets Authority, where Fox is negotiating remedies around the future of Sky News to get the deal through.

The CMA is expected to deliver its verdict to Culture Secretary Matt Hancock by May 1. Hancock is likely to make a final decision on whether to clear the merger by mid-June. Judge Morris said the judicial review wouldn’t have to be decided before the CMA’s final report and Hancock’s ruling.

Representatives from Fox and Sky declined to comment.

Bloomberg News