The culture secretary, Jeremy Hunt, has approved News Corporation’s plan to spin off Sky News, clearing the way for its proposed £8bn purchase of the 61% of BSkyB (NYSE: BSY) it does not already own.
Under the deal, the loss-making news subsidiary will be spun off into a new publicly listed company called Newco, and will be independently funded for 10 years. News Corporation (NSDQ: NWS) is to license the Sky News brand to the operation for seven years, providing an incentive to renew a second funding deal.
News Corporation will have a 39.1% stake in the venture with the other shareholders made up of existing investors in BSkyB.
A key point of negotiation has been the governing structure of Newco, which will have an independent board and chairman. The decision will go to a 15-day consultation.
BSkyB’s share price was up 2% on Wednesday’s close to 816p by 9.30am, suggesting that the City believes News Corp will have to pay 850p plus per share to win over shareholders and gain full control of the satellite broadcaster.
“Informed by advice from the regulators, I believe that these will address concerns about media plurality should the proposed News Corporation/BSkyB merger go ahead,” Hunt said.
“The undertakings offered would ensure that shareholdings in Sky News would remain unchanged, and indeed offer it more independence from News Corporation than it currently has.”
The proposed merger has been vigorously opposed by groups including an alliance of newspapers – the owners of the Daily Mail (LSE: DMGT), Daily Mirror, Daily Telegraph and the Guardian – calling for it to be blocked on media plurality grounds.
Hunt said he was “very aware” of the controversy surrounding the merger and that he had taken independent advice “at every step” to ensure a “free and independent press”.
“Throughout this process I have been very aware of the potential controversy surrounding this merger,” he said. “Nothing is more precious to me than the free and independent press for which this country is famous the world over.
“In order to reassure the public about the way this decision has been taken I have sought and published independent advice at every step of the way, even when not required to do so by law. And I have followed that independent advice.”
Media regulator Ofcom said it had advised Hunt to accept News Corporation’s proposal on the guarantee of “editorial independence and integrity” being placed at the heart of the spun-off operation.
“Ofcom has advised the secretary of state that the proposed undertakings would address our concerns over plurality of news provision, resulting from the transaction, noting the detailed points set out in our letter,” a spokesman said.
“Ofcom is pleased that News Corporation has agreed in the proposed undertakings to place editorial independence and integrity at the heart of Newco and to underpin this with arrangements that secure full independent governance.”
The deal paves the way for News Corp – Britain’s largest newspaper group by virtue of its ownership of the Sun, the News of the World, the Times and the Sunday Times – to complete the purchase of Sky, which is Britain’s largest broadcaster as measured by turnover.
Sly Bailey, the chief executive of Trinity Mirror (LSE: TNI), one of the companies opposing the takeover, called the Sky News deal a “complete whitewash”.
News Corp remained defiant over the need to have submitted a remedy at all, arguing that it had only done so to avoid a “lengthy and costly” review by competition authorities.
“While News Corporation continues to believe that the proposed acquisition of the shares in BSkyB that it does not already own will not result in insufficient plurality for any audience in the UK, it has submitted this comprehensive proposal in order to avoid a lengthy and costly review by the Competition Commission,” the company said in a statement.
The new structure for Sky News will be as follows:
‐¢ Sky News will be spun off as an independent UK public limited company with its shares publicly traded;
‐¢ Shares in the new company will be distributed to shareholders of BSkyB in the same proportions as their shareholding in BSkyB. As a result, News Corporation would retain the same shareholding in Sky News as it currently holds in BSkyB – a 39% economic interest and 37% voting interest;
‐¢ BSkyB will provide a 10-year carriage agreement which will give the new company a substantial long-term revenue stream;
‐¢ BSkyB will license the Sky News brand to the new company and will also provide facilities and support services “on arms-length terms”;
The governance structure of the new company, Newco, will include:
‐¢ A board with a majority of independent non-executive directors;
‐¢ An independent non-executive chairman;
‐¢ A commitment to the principle of editorial independence and integrity that will be enshrined in the articles of association;
‐¢ Approval by the board of the hiring and firing of the editor of Sky News;
‐¢ A corporate governance and editorial committee, including an independent board member with senior editorial and/or journalistic experience, which will be responsible for overseeing compliance and advising the board on provisions relating to editorial independence.
This article originally appeared in MediaGuardian.