News Corp gets green light for BSkyB takeover

LONDON (Reuters) - Rupert Murdoch's News Corp took a huge step toward securing its prized $14 billion buyout of BSkyB on Thursday when Britain accepted its proposals to alleviate competition concerns.

The move will allow News Corp to avoid a prolonged investigation and start negotiating the terms of the deal, its most important and politically charged in Britain for decades.

Murdoch's proposal, to spin off a chunk of his flagship Sky News channel, shows his desire to do a quick deal, analysts said.

"Murdoch has shown how much he wants to acquire the asset, and how speedily he wants to do so," said Tim Daniels, media sector strategist at Olivetree Securities.

"It seems he doesn't have much leverage to avoid paying shareholders top-dollar. Large shareholders should be joining forces to set a consistent and coherent asking price."

As BSkyB consistently posts strong results, analysts have said the price for the satellite pay-TV group would only increase.

News Corp made its initial offer of 700 pence ($1,139) per share for the pay-TV group last summer. Sky's independent directors said they wanted over 800 pence and analysts said on Thursday that the asking price should now be over 900 pence.

BSkyB shares were up 2.8 percent at 821 pence at 1246 GMT (7:46 a.m. EST).

The buyout has blown up into a far wider debate over Murdoch's media control in Britain.

Analysts and lawyers including one with direct knowledge of the situation said it would be hard to challenge the decision, but it is still likely to pile pressure on the government and raise questions over its relationship with Murdoch's powerful empire, which backed the party at the last election.

Murdoch, which owns a third of the British newspaper market including The Sun and Times papers, has a reputation for interfering in the editorial stance of his companies and analysts have speculated that he waited until a Conservative government was in power before launching the deal.

An alliance of media groups opposed to the buyout dismissed Murdoch's solution to competition concerns as a "whitewash."

In return for clearance, News Corp will spin off the loss-making but influential Sky News channel and guarantee its future by giving it a 10-year carriage deal on the Sky TV platform and a seven-year agreement to use the Sky name.

Its board will have a majority of independent directors and the shares in the new company will be distributed amongst the existing shareholders of BSkyB in line with their holdings, with News Corp therefore retaining a 39.1 percent stake.

BSkyB has provided few details about Sky News but analysts and the media speculate that it loses around 20 million pounds a year and that the carriage deal from BSkyB would need to at least cover that loss to make it an attractive prospect.

Analysts say a new Sky News company would be worth around 6 to 15 pence per share to the deal.

"Sky News Plc will ... have an additional affiliate fee from BSkyB/News," Citi analysts said. "Our view is that this could be 20-30 million pounds, giving a net income of 0-10 million. It is likely that this would be 100 percent paid out as a dividend."

Competition lawyers said Media Secretary Jeremy Hunt had played a very clever hand which would suit News Corp and be tough to challenge as the Sky News ownership remained unchanged.

"The ten-year funding provision combined with a seven-year branding license is a canny way to prevent News Corp from shutting down Sky News, whilst potentially making it a more attractive target to an interested third party," said Stephen Smith, a partner at city law firm Reynolds Porter Chamberlain.

Shares in the satellite pay-TV group, one of the most successful in Europe, had risen in recent days as investors expected a positive outcome from the government.

The government will now hold a consultation until March 21.

(Reporting by Kate Holton; Editing by Erica Billingham)