BSkyB may have to cut ITV stake

LONDON - BSkyB looked set for a costly climb-down after a regulator said it should sell more than half of its anti-competitive 17.9 percent stake in ITV.

Although the ruling could cost BSkyB around 200 million pounds at Thursday's share prices, analysts say the News Corp. controlled broadcaster is likely to have succeeded in its long-term plan of preventing any rivals from buying the free-to-air broadcaster.

BSkyB spent 135 pence per share, or 940 million pounds, on its stake in ITV last November in a move that effectively blocked cable group NTL -- since relaunched as Virgin Media -- from buying ITV.

The moved caused uproar, with rivals and legislators alike condemning the deal.

BSkyB paid a 17 percent premium for what it called a long-term investment at the time of the deal. ITV's shares have fallen since then, and at 9:00 a.m. were trading at 84 pence.

The Competition Commission ruled on Thursday that the stake was anti-competitive and should be reduced to below 7.5 percent. Its report has been sent to Secretary of State for Business and Enterprise John Hutton and he has until January 29 to announce a final decision.

The government is required to accept the Commission's findings on the competition issues but has discretion on remedial measures.

The Commission said on Thursday that of two possible options -- either a full divestiture or a reduction to less than 7.5 percent -- it thought the latter would be sufficient to prevent BSkyB from having any material influence over ITV's strategy.

It also said BSkyB should not seek or accept representation on ITV's board.

The Commission revealed that BSkyB had offered to cede all its voting rights but it said this would not fully address the substantial lessening of competition.

ITV has said BSkyB should sell the entire stake or at least trim it to 4.9 percent as it could otherwise exert influence when voting in special resolutions.

But a forced sale may not be all bad news for Sky as media analysts and lawyers say ITV is now much more likely to remain independent following the appointment of industry veteran Michael Grade as executive chairman.

"Sky may have lost the battle, but they have probably won the war," competition lawyer Anthony Woolich said recently.

Since purchasing the stake, BSkyB chief executive James Murdoch, 35, has stepped down to become head of the Asian and European operations at News Corp. Sky has said his successor, Finance Director Jeremy Darroch, was closely involved in previous strategic decisions.

Analysts at UBS said it remained to be seen whether BSkyB could find a suitable buyer for the stake in the current financial market turmoil, or whether the shares would represent a substantial overhang for ITV.