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News Corp BSkyB Takeover in Doubt After Scandal: Analyst

Friday, 8 Jul 2011 | 6:41 AM ET

The likelihood of Rupert Murdoch's News Corporation being given UK government approval to complete its takeover of British Sky Broadcasting has "sharply contracted" over the last 24 hours, Alex DeGroote, media analyst at Panmure Gordon told CNBC.

Rupert Murdoch, Chairman and CEO of News Corporation
Don Emmert | AFP | Getty Images
Rupert Murdoch, Chairman and CEO of News Corporation

News Corp had been looking to acquire the remaining 61 percent of the broadcaster that it does not already own, in an effort to solidify the company's already influential position within the British media.

However, fresh allegations of phone hacking at Sunday tabloid the News of the World means the deal now hangs in the balance.

"The balance of probability has moved against the deal happening and what's more my understanding is that the consultation exercise in terms of the outcome has now been pushed back to September which is two to three months away… lots can happen between now and then of course," DeGroote said.

The British Culture Secretary, Jeremy Hunt, who was tasked with overseeing the bid, had previously signalled that he was likely to approve the takeover, subject to news arm Sky News being excluded from any deal.

The original consultation period was due to close today with a decision expected next week, but a number of damaging revelations including the allegation that a journalist formerly at the newspaper hacked into the phone of a missing schoolgirl who was later found murdered, have fuelled public opposition to any further power being handed to the Murdoch-owned media in Britain.

Alex DeGroote said he did not see public anger abating and that, combined with political considerations on behalf David Cameron's government, meant approving the deal was unlikely to happen.

"If for some strange reason public opposition suddenly died down, which I can't envisage happening; if Ofcom (the UK broadcast media watchdog) suddenly said that they categorically said that they did not want to pursue a 'fit and proper persons test', that would convince me (that the deal was still likely)," De Groote said.

On Thursday, News International chairman James Murdoch announced that the 168-year old News of the World would close this Sunday, in a shock announcement that is likely to lead to hundreds of job cuts.

Tabloid Sacrificed for BSkyB?

The tabloid, along with its sister weekly newspaper, The Sun was one of the few profitable UK print news publications in a sector where business models are faltering, but DeGroote said the profitability of the News of the World pales in comparison to BSkyBand Murdoch's News Corp was willing to sacrifice the tabloid for a much bigger prize.

"It's not publicly disclosed, but my best guess is (the News of the World) does £15 million ($24 million) of profits, Sky would do crudely £1 billion of profits ($1.6 billion), 100 percent ownership of Sky would give (News Corp) a much more significant position in the UK media landscape than the News of the World. The News of the World has fantastic iconic value," he explained.

"Sky would give (News International) an overwhelming position in the UK media sector and the question is, is that acceptable now and going forward," he added.

DeGroote said shares in BSkyB would fall slightly if the bid by News Corp collapsed and he pointed to other news organizations' share prices picking up after the announcement that the News of the World is to close.

"As a standalone, if there was no bid spec, if there was no suggestion that the (BSkyB) was going to get taken out (by News Corporation), the shares would be worth 7.00 pounds ($11.00), maybe a range of 6.25 pounds to 7.25 pounds, so where we are right now with a share price of 8.15 pounds, I think there's roughly one pound of bid spec in there that will come out if the deal collapses," he said.

Other British media organizations, including the mid-market tabloid the Daily Mail and rival group Trinity Mirror have benefitted from the scandal at News International.

DeGroote said Panmure Gordon was backing investors to buy Trinity Mirror shares.

"The Daily Mail's up 2.5 percent today, we've been pushing Trinity Mirror ourselves as a beneficiary of this outcome, let's also not forget that Sky's a very valuable company with a superb market position, it's just at this moment in time the share price is a function of whether or not it's acquired, as a standalone its value would be a bit lower," he stressed.

British Prime Minister David Cameron said in a press conference on Friday morning that phone hacking by News of the World journalists of murder victims, victims of terrorism and families who had lost relatives in war was "simply disgusting".

Cameron promised a judge-led inquiry into the affair to follow a police inquiry already underway, to investigate whether police officers took payment from journalists for confidential information.

However, Cameron stopped short of giving any further information on the BSkyB/News Corp deal, saying it would "take time" for independent regulators to advise the government over the bid.

Following David Cameron's speech and a statement by the Department for Culture, Media and Sport that it would consider the closure of the News of the World when assessing the takeover bid, BSkyB shares fell by 4 percent.

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