A competition law expert said that a crucial factor in
the Competition Commission's provisional finding is likely to have
been the control that Sky could have exerted over ITV's future
strategy. Giles Warrington of Pinsent Masons, the law firm behind
OUT-LAW.COM, said that Sky may have been able to exert a
stranglehold on ITV's future.
"If ITV wanted to fund certain departments or investments they
would have to raise funds," said Warrington. "Because Sky could
effectively block special resolutions if it has 25% of votes at a
meeting, they would be able to restrict ITV's access to finance and
affect plans for expansion."
Warrington said that Office of Fair Trading analysis showed that
with the reduced numbers of shareholders who participate in a
meeting, Sky's 17.9% is often enough to block a special resolution.
"Sky could have an incentive to do that, to block future innovation
by ITV, so it could be of benefit to Sky," he said.
A special resolution is only passed with the support of 75% of
votes cast – so it can be blocked by any party that has a
shareholding equating to 25% of votes cast plus one vote. Because
many shareholders do not exercise their right to vote, a
shareholder owning less than 25% of a company can often block a
special resolution.
The Competition Commission announced its provisional findings
and will produce a full report later this year. It said that Sky
parent BSkyB's shareholding did not have a detrimental effect on
overall plurality in the market or news production, but it did say
that the deal could have a negative effect in the arena of long
term ITV strategy.
"The acquisition has made BSkyB ITV's largest shareholder by
some margin and whilst our provisional view is that this would not
necessarily affect day-to-day operations, BSkyB would be able to
influence ITV's key strategic decisions, particularly relating to
investment, whether in content, capacity or new technology," said
Peter Freeman, Chairman of the Competition Commission.
Though it was a minority stake in the broadcaster, Sky's was the
biggest single shareholding in the company. This gave it more power
than anyone which, said Warrington, could have been as big a factor
for the Competition Commission as the exact amount of the
shareholding.
"It raises the fact that a minority interest can raise concerns
if it is held by a trade player in one of its competitors, where
the trade player is the largest shareholder," said Warrington.
"That can be the case even if it is a relatively low
shareholding."
Sky bought its stake in ITV in November last year for £940
million. This week the stake was worth just £720 million.
The Competition Commission will send a report to the Secretary
of State for the Department for Business, Enterprise &
Regulatory Reform (BERR) John Hutton. Hutton can only decide what
remedy to impose on Sky if part of the remedy relates to the public
interest complaints about the deal.
Because the Commission does not have concerns about the public
interest part of the complaint, it is likely that Hutton will have
to pass the issue back to the Competition Commission to decide on a
remedy, said Warrington.
