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Fox's Sky Buyout Hits Roadblock, UK Demands More Scrutiny

Rupert Murdoch’s Twenty-First Century Fox, Inc.‘s FOXA proposed acquisition of remaining 61% stake in Europe’s leading pay-TV broadcaster Sky plc hit a roadblock after U.K. government 'minded' to refer the deal for second phase of review to Competition and Markets Authority (“CMA”). Culture Secretary Karen Bradley referred the matter for further review as the deal “potentially raises public interest concerns”.

The phase two review comes in spite of the Office of Communications commonly known as Ofcom’s view on the report that “the proposed undertakings offered by Fox to maintain the editorial independence of Sky News mitigate the media plurality concerns.”

Meanwhile, Bradley further said that “The transaction may increase members of the Murdoch Family Trust's ability to influence the overall news agenda and their ability to influence the political process and it may also result in the perception of increased influence.”

Now both Twenty-First Century Fox and Sky have to address concerns within Jul 14 before Bradley makes her final decision on whether or not to refer the matter to Competition and Markets Authority. The company stated that it will work in tandem with the U.K. government for making the deal a successful one.

If Bradley refers the matter to the CMA then it may take around 24 weeks to complete the review process. Taking this in to consideration, the deal is expected to be sealed by Jun 30, 2018.

We believe this is a major setback for Twenty-First Century Fox which was expecting to get the go-ahead signal on Jun 29. The deal which is valued at $15.2 billion will strengthen the company’s position in pay-TV network in Britain, Ireland, Austria, Germany and Italy. As of 2016, Sky already has 21 million pay-TV subscribers and 30,000 employees. Moreover, the deal will reinforce Sky’s position in entertainment and sport, and will also augment its adjusted earnings and free cash flow.

Despite this discouraging news mot much movement was witnessed in the company’s share price. However, we noted that the stock has declined 12.9% in the past three months, wider than the Zacks categorized Movie/TV Production/Distribution industry’s decrease of 10.5%. Over the same period, other stock from the same space which include Lions Gate Entertainment Corp. LGF.A and Eros International Plc EROS have gained 7.2% and 13.6%, respectively, whereas World Wrestling Entertainment, Inc. WWE has declined 7.6%.

Twenty-First Century Fox currently has a Zacks Rank #3 (hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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