In a further blow to Rupert Murdoch, a $2-billion takeover bid by an Australian pay-TV business part-owned by his News Corp. is expected to be blocked by the country's competition watchdog.
The bid by Foxtel, in which News Corp has a 25-per-cent stake, for rival Austar will create a pay-TV monopoly, the Australian Competition and Consumer Commission (ACCC) said. Austar shares plunged as much as 20 per cent.
The commission insisted its preliminary finding had nothing to do with the phone hacking scandal engulfing News Corp in Britain, which prompted Mr. Murdoch to abandon a separate pay-TV deal to fully take over British firm BSkyB.
"It has nothing to do with it all, not even a consideration," Graeme Samuel, the commission's chairman, told Reuters.
Analysts warned that the commission's final decision due in September was likely to reflect its preliminary views, thus killing the deal.
"It is hard to see what kind of remedies Foxtel and Austar can provide to alleviate the concerns of the ACCC, without undermining the value of the deal," said Justin Diddams, an analyst at Citi.
Mr. Murdoch's major shareholder partners in Foxtel include telecoms firm Telstra and billionaire James Packer's Consolidated Media Holdings.
Foxtel launched a bid in May to buy Austar, which is majority owned by Liberty Global.
The deal is small for News Corp, a media group that reported third-quarter net income of $639-million and revenues of $8.26-billion.
But Austar shares had slipped earlier in the week on concerns the fallout from the phone hacking scandal that has undermined confidence in Britain's media, its politicians and the police may affect Foxtel's bid because News Corp. was a major shareholder.
Austar shares slumped as much as 20 per cent after the commission's comments, wiping $330-million (Australian) ($358-million U.S.) off its market value. They closed down 16 per cent.
Even though the Austar deal may be closed off to Foxtel, the Australian government has decided to reopen a bitterly fought tender involving Murdoch's part-owned Sky news for the country's taxpayer-funded overseas TV service.
The Austar deal, finalized after years of talks, would have marked the latest shake-up for Australia's media sector as the pay-TV operator sought to revive flagging subscriptions and take on the nation's free-to-air television stations.
"It does open the door for a competing bid, if anyone out there was thinking of getting into the Australia market, with Foxtel's hands now tied," said a fund manager, who declined to be named. He pointed to telecoms firm Optus, owned by Singapore Telecommunications, and iiNet as potential suitors.
Both Austar and Foxtel said they would work with the competition regulator to try to save the bid to form one of Australia's largest media businesses with more than 2,500 employees and anticipated revenue of more than $2.8-billion.
"Competition in this market will only further increase in the future with developments in technology and the rollout of the NBN," said Foxtel chief executive Kim Williams. He was referring to a government initiative to build a National Broadband Network (NBN).
The commission said the Foxtel-Austar deal could substantially lessen competition in subscription TV services, acquisition of audio visual content and competition in telecommunications products.
"If that preliminary view were to be confirmed .... then the ACCC would be opposing the merger," Samuel, who retires next week, said.
Key to the ACCC's concerns is the rollout of the $35.9 billion (Australian) ($38.9-billion U.S.) NBN, which will change the competitive landscape for pay-TV and telecoms services in the country and change the competitive landscape in the future, Samuel said.
Currently, Foxtel and Austar would have to install expensive satellite dishes to expand outside their existing markets.
But a national broadband network would mean they could expand in future with new cheaper technologies such as Internet streaming.
The watchdog expects to complete market inquiries by Aug. 11 and make a final decision on the deal on September 8.
Mr. Murdoch's News Corp empire has come under enormous pressure in the wake of revelations that journalists at one of its British newspapers paid bribes to police and hacked the phones of thousands of people including celebrities, war widows and victims of crimes.
Probes are underway in Britain and the United States.
Australia is looking at strengthening privacy laws because of public concern over media intrusion in the wake of the phone-hacking scandal.