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The assessment of media mergers

The Enterprise Act 2002 effected a major reform of the control of mergers and takeovers, removing the decision-making powers of Ministers, save in defined exceptional cases, and passing this responsibility to the competition authorities – at the time, the Office of Fair Trading (OFT) and the Competition Commission (CC).

Under the Act, the competition authorities are required to assess whether a merger should be prohibited on the basis of whether the merger can be expected to lead to a substantial lessening of competition.  Mergers are formally assessed if the company being taken over exceeds a given size (a turnover of £70m or more), or if the merged entity would control 25% or more of its market. In April 2014 the OFT and the CC were merged to form the Competition & Markets Authority (CMA), established in April 2014. While the establishment of the CMA was a major reform in the competition regime, it did not involve any changes either to Ministers’ powers to intervene, or to the ‘substantial lessening of competition’ test which the CMA applies in assessing mergers.[1]

The UK competition regime interlocks with the competition regime that applies across the EU. The European Commission has jurisdiction over mergers which have a ‘Community dimension’, determined by a turnover test similar to that applied by the UK competition authorities – established by the EU Merger Regulation, Regulation 139/2004 (EUMR).  As with UK law, the EUMR establishes a substantive test to determine whether a merger should be permitted or not: specifically, that it would significantly impede effective competition, in particular as a result of the creation or strengthening of a dominant position, and thus be incompatible with the common market. 

The 2002 Act allows for the Secretary of State to intervene in mergers where they give rise to certain specified public interest concerns: specifically, issues of national security; media quality, plurality & standards; and, financial stability (under s58 of the Act). In these cases the Secretary of State may make an assessment of a merger purely on the grounds that it runs counter to the public interest, without deferring to the ‘substantial lessening of competition’ test, or they may give regard to both tests in coming to a final decision.

The 2010/11 BSkyB bid

After some months of speculation, in November 2010 NewsCorp, the media giant run by Rupert Murdoch, formally notified the European Commission of its bid to takeover the satellite broadcaster BSkyB by purchasing the 60.9% of shares it did not already own.  The size of the proposed acquisition meant that the Commission had the lead in determining whether the merger should proceed on competition grounds. The following month the Commission ruled that the merger would not significantly impede competition,[2] though during this time the Secretary of State for Business, Vince Cable, requested Ofcom – the independent regulator of the UK communications sector – to investigate the impact the merger would have on media plurality.[3]  Following publication of comments by Mr Cable to the effect that he was ‘at war’ with Mr Murdoch, the statutory responsibility for all competition and policy issues relating to the media was transferred to the Secretary of State for Culture, Olympics, Media & Sport.[4] 

On 25 January the Secretary of State, Jeremy Hunt, published Ofcom’s report – which had recommended that the merger be referred to the Competition Commission – along with correspondence with NewsCorp and BSkyB.  Mr Hunt stated that “it may be the case that the merger may operate against the public interest in media plurality” but that, with advice from the OFT and Ofcom, he would consider “any undertakings in lieu offered by any merging party which have the potential to prevent or otherwise mitigate the potential threats to media plurality.”[5]  On 3 March Mr Hunt announced that he was proposed to accept undertakings from NewsCorp to spin off Sky News as an independent public limited company – rather than refer the bid; a public consultation on these undertakings would run until 21 March.[6]  On 30 June Mr Hunt published a further update, stating that although “the consultation did not produce any information that caused Ofcom or the OFT to change their earlier advice to me”; a short consultation would be launched on “a revised, more robust set of undertakings” until 8 July.[7]

Following the Secretary of State’s statement it was widely reported that the bid would be approved.[8]  This was thrown into doubt by a sudden series of events: the disclosure of the alleged activities of the News of the World in widespread phone hacking and making illegal payments to police officers; Rupert Murdoch’s decision to close the newspaper immediately; and, the Prime Minister’s announcement that on the completion of police inquiries into the paper’s actions, public inquiries would consider the police investigation into the newspaper, and on wider issues relating to the media.[9]   On 8 July the Secretary of State confirmed the formal end to the consultation process, but underlined that consideration of all the responses received would take ‘some time’.[10] 

On 11 July the Secretary of State wrote to Ofcom and the OFT, to ask for their advice on how these events bore on concerns about the threat posed by the bid to media plurality, and the credibility of NewsCorp’s undertakings.[11]  Later that same day, Mr Hunt made a statement to the House confirming that NewsCorp had decided to withdraw its undertakings in lieu, and that as a result, he would refer the bid to the Competition Commission with immediate effect.[12]  On 13 July the Prime Minister gave details of the two-part public inquiry: first, into the ‘culture, practices and ethics of the press’, and, second, in the light of the ongoing criminal proceedings, into the extent of unlawful or improper conduct at the News of the World and other newspapers, and the original police investigation into these matters.[13]  In addition the House debated and resolved a motion, moved by the then Leader of the Opposition, Ed Miliband, that in the public interest NewsCorp should withdraw their bid.[14]  The debate was pre-empted by the company’s announcement that it had, in fact, withdrawn its bid.[15]

The controversy over the News of the World also led to calls for Ofcom to reconsider BSkyB’s broadcasting licence, and whether the company still met the statutory test to be a ‘fit and proper’ person to hold such a licence.[16]  On 6 July the regulator issued a statement saying that while it was “clearly not for Ofcom to investigate matters which properly lie in the hands of the police and the courts … we are closely monitoring the situation and in particular the investigations by the relevant authorities into the alleged unlawful activities.”[17]  In September the following year Ofcom published its decision that the company, now renamed Sky, did, indeed meet the fit and proper test.[18]

More recently Rupert Murdoch has launched a second attempt to takeover the company, now renamed Sky plc, with a bid from 21st Century Fox, the successor company to NewsCorp. This is the subject of a second Library note: Media ownership: the Fox/Sky merger, Commons Briefing paper CBP7969, 22 June 2017.

Notes : 

[1]     For further details on the UK merger regime see, Competition & Markets Authority, Mergers: Guidance on the CMA’s jurisdiction and procedure, CMA2, April 2014

[2]     European Commission press notice IP/10/1767, 21 December 2010

[3]     Ofcom is one of a number of sectoral regulators – such as Ofgem and Ofwat – which have the power to enforce competition law in their own area, along with the competition authorities.

[4]     HC Deb 18 January 2011 cc35-6WS

[5]     HC Deb 25 January 2011 cc3-4WS

[6]     HC Deb 3 March 2011 cc518-9

[7]     HC Deb 30 June 2011 c1107

[8]     for example, “Hunt ready to clear Murdoch’s takeover of BSkyB”, Financial Times, 1 July 2011

[9]     Prime Minister’s Office, Morning press briefing, 7 July 2011

[10]    DCMS, Statement: News Corporation’s proposed acquisition of BSkyB, 8 July 2011. Material about the bid is collated on the National Archives site.

[11]    “BSkyB takeover: Jeremy Hunt seeking new advice”, BBC news online, 11 July 2011

[12]    HC Deb 11 July 2011 cc39-40, c50

[13]    HC Deb 13 July 2011 cc311-2. The first part of this inquiry, the Leveson Report, was published in November 2012. To date a second inquiry has not been launched. For more details see, Press regulation after Leveson – unfinished business?, Commons Briefing paper CBP7576, 9 June 2017.

[14]    HC Deb 13 July 2011 cc390-423

[15]    “NewsCorp scraps bid for BSkyB”, Financial Times, 14 July 2010

[16]    For a summary of its statutory responsibilities in this area see, Ofcom, Frequently asked Questions: ‘Fit and Proper’ in relation to broadcast licensees, May 2012

[17]    Ofcom, Statement on Fit and Proper, 6 July 2011.  The then chief executive of Ofcom, Ed Richards, set out the position at greater length in a letter to John Whittingdale, chairman of the DCMS committee, on 8 July.

[18]    Ofcom press notice, Ofcom decision on fit and proper assessment of Sky, 20 September 2012. See also, “Sky is a fit and proper broadcaster, rules Ofcom”, Guardian, 20 September 2012.

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