Murdoch Wins Sky Takeover Green Light

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Murdoch arrives at the Academy Awards on Feb. 27, 2011

Rupert Murdoch turns 80 on March 11, but his ability to cause controversy is undiminished. The Australian-born media mogul is at the center of a new row after the U.K. government on March 3 effectively gave him the green light to take full ownership of BSkyB, the satellite TV company he founded more than two decades ago. Murdoch's business rivals and political enemies have cried foul, claiming the deal will allow him to strengthen his grip on the nation's media sector and once again proves he is too close to the government.

Until now, Murdoch's News Corporation has owned just 39% of Sky, always seen as enough to give Murdoch effective control of a business of which his son James used to be chief executive and remains chairman. The reason News Corp now wants full ownership is essentially commercial: at a time when other parts of the media industry are being squeezed, Sky has become seriously profitable, set to throw off $1.6 billion in cash a year. With full control of this income stream, Murdoch could use it to support the harder-pressed parts of his global empire, which includes Fox and the Wall Street Journal.

After European regulators cleared a takeover on competition grounds, Murdoch still had to win over the British government. The country's media watchdog flagged up concerns about the concentration of news provision if Murdoch's four U.K. newspapers — including the Sun, Britain's best-selling daily — and the Sky News channel were under common ownership, a scenario that would give Murdoch around a quarter of the overall U.K. news market and make News Corp easily the biggest commercial player (though still some way behind the publicly owned BBC). So on Thursday, British Culture Secretary Jeremy Hunt agreed to let the deal through if Sky were to "hive off" Sky News.

In essence this means Sky News will become an independent entity, though Sky will remain an investor at its current 39% level and guarantee its existence by becoming a paying customer through a 10-year contract. Without this commitment, the money-losing news channel would have been in danger of going out of business.

So what has Murdoch actually lost in the trade-off? Not much. He can't run Sky News as his own property: there will be an independent chairman and a majority of independent directors on its board. And he won't be able to turn the channel into a British version of Fox News — but that was always unlikely because of strict impartiality rules in the U.K. Plus, while Sky News is respected within media and political circles, it accounts for only a small fraction of Sky's revenues.

Murdoch biographer Michael Wolff, author of The Man Who Owns the News, sees the outcome as further vindication of Murdoch's lobbying skills. "Rupert is as good as any businessman, world class, at negotiating through regulatory issues," he says. "He spends a lot of money, hires the right people, and he has long-term relationships with the right people. Sometimes a CEO is really a CFO or a chief marketing guy — Rupert is really a government-affairs guy."

But Wolff warns that Murdoch's record suggests he will retain an interest in Sky News. "The logical outcome is for Rupert to find a way to subvert this deal. I say that without animosity. It's the way he always operates," Wolff says. "He always manages to do these deals which give the illusion of independence but in which he maintains the ultimate leverage."

No wonder Murdoch's detractors see the Sky News compromise as a "whitewash" — to quote one media executive. Rival newspaper groups have ganged up to protest the deal and the power they say Murdoch would derive from combining the U.K.'s biggest newspaper group with its richest TV company. The news groups worry that further down the line Murdoch will be able to come up with ideas — selling TV and newspaper subscriptions together, for instance — that would upset their business models.

And for many in Britain, the controversy underlines a pervasive suspicion that for more than 30 years Murdoch has been getting his way in exchange for political support. The issue has now exposed tensions at the heart of the U.K.'s coalition government. Prime Minister David Cameron's Conservatives received a major boost before last year's general election when Murdoch's papers voiced their support of the party, while coalition partners the Liberal Democrats are instinctively opposed to Murdoch. In fact, the Lib Dem minister originally tasked with ruling on the Sky deal was stripped of this responsibility when he was caught in a covertly taped conversation saying he had "declared war" on Murdoch; Culture Secretary Hunt, who passed the deal on March 3, is a Conservative.

Despite noises about legal action, it may be too late for Murdoch's opponents to derail the takeover, but he still has one final obstacle: to win over Sky's independent directors. Last year they turned down News Corp's $12 billion offer for the rest of the shares; now News Corp is expected to raise its offer considerably. Some analysts think the company might be forced to fork out as much as $16 billion. The problem for Murdoch is that shareholders know he is desperate to finalize the deal — but then who would bet against the soon-to-be octogenarian when he wants something this badly?