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Ofcom to report back on £11.7bn 21st Century-Sky deal on Tuesday

Ofcom has been investigating effect full Fox control could have on Sky and the British media generally
21st Century Fox logo
Fox agreed the deal with Sky back in December

Ofcom is due to report back on 21st Century Fox’s (NASDAQ:FOX) proposed £11.7bn takeover of UK broadcaster Sky PLC (LON:SKY) on Tuesday.

The UK broadcast regulator has been looking at whether or not Rupert Murdoch’s Fox would be a “fit and proper” owner, as well as if any deal would give the 86-year-old billionaire too much control of the media.

Fox already owns 39% of Sky and it’s bidding for the remaining 61%, while Murdoch’s News Corp is also the owner of The Sun and Times newspapers.

What is Ofcom looking at?

Ofcom wants to know what effect full Fox control could have on Sky and the British media generally.

To this end, it is likely to look at Fox’s record on broadcasting standards, while it will also investigate whether allowing Murdoch to increase his stake in Sky could reduce media plurality.

Fox have reportedly argued that Sky’s good record of compliance with on-air rules and the rise of internet news mean there should be no objections on these ground.

As hinted at earlier, the other strand of the regulators review will look to determine if Fox would be a “fit and proper” owner.

Ofcom has allegedly sought detailed information surrounding the ongoing harassment scandal at Fox News, with regulators interested in the allegations themselves as well as the firm’s response to them.

Election has changed landscape

The general consensus before this month’s election was that the deal would likely get the go-ahead, although this doesn’t look so certain now after the Tories lost their majority.

As former Lib Dem business secretary Vince Cable explained to City AM: “There was always a suspicion that if the Conservatives had a big majority they would pull their punches.

“I’ve now got complete confidence in the process, that they will produce a conclusion which is evidence-based and not driven by political sensitivities.”

Investors also seem less convinced that the deal will go through without a Tory majority in Westminster, with the share price shedding more than 3% over the past ten days or so.

Some analysts and commentators think this falling share price is strong evidence that the takeover is in doubt.

That said, UBS analyst Polo Tang still expects the takeover to receive the green light eventually, although he does think the election result might delay proceedings.

“Had the Conservatives won a large majority, we think it would have been more straightforward to approve the deal relatively quickly,” wrote Tang in a note to client.

“With the Conservatives remaining the largest party, we still see scope for the deal to be approved but the risks around an extended review have increased.”

What will happen on Tuesday, then?

Ofcom will privately report back to culture secretary Karen Bradley and share its opinions and findings. With this information to hand, Bradley then has several options to choose from:

1)      wave through the deal as is

2)      discuss remedies or undertakings with the companies and secretary of state

3)      refer the bid to the Competition and Markets Authority for a more in-depth review

4)      dismiss the takeover approach out of hand

Wolseley to rely on US growth as Europe battles

Elsewhere on Tuesday, Wolseley's (LON:WOS) US business is expected to show continuing good growth when the plumbing and building materials reports third quarter numbers.

Ferguson, the name of the US business, a market leader, is expected to generate almost 90% of group profit in 2017 alone, as the UK business undergoes restructuring against a challenging market and economic background.

The US business is also expected to get a kick from President Trump's tax changes and building policies.

As well as the US and the UK, the group operates in the Netherlands and Switzerland and has building materials in the Nordics, which it is selling.

Broker Liberum is a fan and has upgraded the share to 'buy' from 'hold' and hiked the target price to 5,300p from 4,975p (current price: 4,792p).

"We expect growth in the US to be renewed as the headwinds of industrial demand and deflation fade, and strong fundamentals shine through," said analyst Charlie Campbell.

He also reckons capital returns to shareholders are likely in the future.

"Wolseley returned £550m in 2014 and 2015 and we expect it to have scope to return up to £2.9bn over the next four years, including the Nordics proceeds, before acquisition spend," he noted.

Campbell noted that the UK restructuring is ongoing and that Wolseley has pooled its Swiss sUBSidiary, Tobler, with listed Walter Meier, keeping a 39% stake in the enlarged business.

"Restructuring across Europe should also be incremental to returns," he added.

Announcements due Tuesday 19 June

Finals: Bonmarche Holdings PLC (LON:BON)

Interim: CareTech Holding PLC (LON:CTH)

Trading statement: Globalworth Real Estate Investments Limited (LON:GWI)


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