U.K. Approves Murdoch's Takeover of BSkyB

News Corp's Rupert MurdochRupert Murdoch's global media empire is poised to grow ever bigger after the British government approved plans by News Corp. (NWS) to buy full control of satellite TV operator British Sky Broadcasting Group PLC.

In a controversial move, the Conservative-led coalition said Thursday it will give News Corp. the green light to buy the remaining 61% of BSkyB it does not already own - on the condition that it spin off its Sky news channel as an independent company.

The ruling, which is subject to industry consultation and potential legal challenges, was immediately attacked by a coalition of other major media outlets and the opposition Labour Party.

News Corp. made the concession to hive off Sky to avoid a prolonged investigation by competition regulators into the proposed 12.3-billion-pound ($20-billion) deal, one of its most politically charged takeovers in years.

"Pure Window-Dressing"

Opponents are concerned that the company, which already owns the top-selling tabloid newspaper, The Sun, as well as The Times, The Sunday Times and the News of the World, will have too strong a voice in the British media industry. They also question the government's relationship with Murdoch's powerful news group.

"We deeply regret the fact that the Secretary of State is minded to clear the deal," the Media Alliance, a grouping including BT Group PLC, the Guardian Media Group, Associated Newspapers Ltd, Trinity Mirror PLC and the Telegraph Media Group, said in a statement. "The proposed undertaking is pure window-dressing."

"Smoke and mirrors will not protect media plurality in the U.K. from the overweening influence of News Corp."

The alliance said it intended to "vigorously contest" the proposal during the 18-day consultation period and examine its legal options, raising the likelihood of a court challenge to the ruling.

A Free Press Is "Precious"

Culture Secretary Jeremy Hunt said he was "very aware" of the controversy surrounding the deal, but the company had addressed concerns about media plurality should the takeover go ahead.

"The undertakings offered would ensure that shareholdings in Sky News would remain unchanged, and indeed offer it more independence from News Corp. than it currently has," Hunt said. "Nothing is more precious to me than the free and independent press for which this country is famous the world over."

Murdoch's News Corp. wants full ownership of BSkyB to get access to all of the pay-television company's profits, which amounted to 407 million pounds ($648 million) in the second half of 2010.

In return for government approval, News Corp. will spin off the loss-making but influential Sky News, retaining a 39.1% stake in the news channel, the same as its current stake in BSkyB. It will not be able to increase that shareholding for 10 years without government permission.

To ensure the channel's survival, News Corp. will fund Sky for 10 years and agree to a seven-year licensing agreement for it to use the Sky News name.

Shareholders' OK Needed

Media watchdog Ofcom, which had submitted a critical report on News Corp.'s original takeover plans, said it supported the new proposals, noting that the company had agreed to "place editorial independence and integrity at the heart" of the spun-off Sky News.

Aside from the consultation hurdle, the proposed deal hinges on shareholder approval. News Corp. has yet to agree on a takeover price with BSkyB after its initial 12.3 billion pound, or 700 pence per share, bid was rejected as too low. The two companies agreed to postpone setting a price until the regulatory hurdles had been overcome.

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