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Last Updated: Thursday, 20 December 2007, 09:25 GMT
BSkyB 'should sell shares in ITV'
Coronation Street characters Harry Mason (left) and Dan Mason
The regulator is worried ITV could cut its spending on content
BSkyB should be forced to sell some of its 17.9% stake in ITV, the Competition Commission has recommended.

The regulator said that BSkyB should either sell all of its shares or cut its stake to below 7.5% and promise not to take a seat on ITV's board.

BSkyB and ITV both said they were studying the report and awaiting a final decision from the government.

Business Secretary John Hutton has until 29 January to decide what action to take on the report's findings.

He has to accept the commission's findings about the impact on competition, but is allowed to come up with different solutions to the problems identified.

BSkyB says that it has not sought to influence ITV and when it bought that stake in November last year it did so as an investment.

But Virgin Media has accused BSkyB of effectively blocking an ITV takeover.

Shares in the pay-TV broadcaster BSkyB fell 1.15% to 600p, while shares in ITV rose 1.7% at 84.4p after the announcement.

Investment worry

The commission found that BSkyB's stake would be big enough to allow it to block special resolutions and that it "would limit ITV's strategic options, for example its ability to raise funds".

Michael Grade, executive chairman, ITV

It also decided that there would be an effect on ITV's programming.

"Given its interests as a competitor and despite its interests as a shareholder, we believed that BSkyB would have the incentive to reduce ITV's investment in content," the report said.

But in terms of news coverage, the report concluded that BSkyB's stake would not allow it to exert significant influence over ITV's news output or over ITN, in which ITV holds a 40% stake.

BSkyB said in a statement: "The next phase of this process lies with the Secretary of State. We will be making representations to him in due course."

A statement from ITV said: "ITV welcomes the publication of the Competition Commission's report today and awaits a final decision by the Secretary of State in due course."

Virgin Media also said it would be studying the report.

"We're pleased that the Competition Commission has acknowledged the serious problems raised by Sky's stake in ITV and, in particular, its potential to distort the competitive landscape," it added.

Competition row

On 17 November 2006, BSkyB announced that it had spent 940m buying 17.9% of ITV.

But the commission's report dismissed BSkyB's argument that it had bought the shares because they were cheap.

"We thought it unlikely that that BSkyB would have chosen to invest in ITV purely as an investment vehicle," the commission said.

It bought the shares at a price of 135 pence each. By the close of trade on Wednesday they closed at 83p, which means BSkyB will make a hefty loss if it is forced to sell.

The shares were bought at a controversial time, when ITV was struggling without at chairman and NTL, which has since been rebranded as Virgin Media, was considering a takeover.

At the time Sir Richard Branson, who was NTL's biggest shareholder, described BSkyB's share purchase as, "a blatant attempt to distort competition".

Four days later ITV rejected NTL's approach, saying it undervalued the company.

A week after that, ITV announced that Michael Grade had left the BBC to become its new chairman.

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