BSkyB's ITV stake should be cut to 7.5% says watchdog

SATELLITE broadcaster BSkyB faces a loss of about £200 million from its stake in rival ITV after competition officials said it should dramatically reduce its holding.

The Competition Commission said Sky's 17.9 per cent stake could result in a "substantial lessening of competition" because of a loss of rivalry between the two television companies, potentially leading to a drop in quality.

It recommended BSkyB be allowed to retain a stake of no more than 7.5 per cent.

Sky bought the stake in November 2006 when the company was under the helm of Rupert Murdoch's son James, who has since moved on in the News Corporation empire. News Corp, owner of a raft of major newspaper titles and media concerns, owns a 39 per cent stake in BSkyB.

When the holding was revealed it was seen as an attempt to block NTL – now part of Sir Richard Branson's Virgin Media – from buying ITV, or even a potential move on ITV by BSkyB itself. Virgin Media later pulled out of the battle for ITV.

The commission's recommendation will pass to Business and Enterprise Secretary John Hutton, who must make a decision by 29 January.

Under the recommendations, BSkyB would be prevented from selling its stake to an associate company, or seeking a seat on ITV's board of directors. ITV welcomed the decision. Sky said its next move would be to make representations to Hutton.

As well as a knock to Sky's influence over commercial television, a sale would hurt the company financially. Sky paid 135p a share for the ITV stake, spending some £940m. If it was to sell the shares at the current price – ITV closed up 1.4p at 84.4p yesterday – it would result in a loss of about £200m for Sky.

ITV's shares lifted on hopes the sale could increase the possibility of a takeover, which could trim Sky's losses. BSkyB slipped 7p to 600p, with the proposed stake sale less extreme than some analysts expected.

A recommendation to divest had been expected following the Office of Fair Trading's preliminary findings.

Observers said the recommendations could have been more severe, with ITV seeking to have Sky's holding cut to no more than 5 per cent.

In its report, the commission also raised the possibility of Sky being forced to sell its entire stake. However, it concluded a reduction to 7.5 per cent was a "more proportionate" remedy, as "below this level, there would be no realistic prospect that BSkyB would be able to exercise material influence".

COMPETITION KEY IN HUTTON DECISION

THE Competition Commission inquiry into BSkyB's 17.9 per cent stake in ITV was launched because of worries over a lack of healthy competition.

Officials began their investigation in May after BSkyB spent £940 million buying into its competitor in November last year.

ITV bosses were worried that Sky's share could result in power being lost and key strategic decisions influenced. Earlier this year, the commission recommended BSkyB be forced to sell at least part of its holding, making yesterday's announcement less of a surprise.

BSkyB bought the shares for 135p but they are now valued at just 84p.

Being forced to sell the entire stake would represent a loss of £370m at today's prices, but the commission has said it believes allowing BSkyB to retain 7.5 per cent would not lead to undue pressure being placed on its rival.

The final outcome rests with John Hutton, Secretary of State for Business and Enterprise, who must make a decision by 29 January. He could still come to a different conclusion on the proposed remedies.