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21st Century Fox, BSkyB Discuss European TV Deal

LONDON (The Deal) -- After a humiliating defeat in 2011 which precipitated a restructuring at News Corp. (NWSA - Get Report) Rupert Murdoch is once again attempting to consolidate his European pay-TV operations.

21st Century Fox's 39%-owned British Sky Broadcasting Group plc has entered talks with its largest shareholder about buying the New York TV and film group's wholly owned Sky Italia unit and its separately listed Sky Deutschland, in which 21st Century Fox owns a 57% stake.

Both BSkyB and 21st Century Fox confirmed the talks on Monday, May 12, with BSkyB noting that it doesn't envisage offering a premium to minority owners of Sky Deutschland if it ends up striking a deal with the German company's controlling shareholder. It said an agreement would be subject to " the Sky Deutschland share price continuing to trade on an undisturbed basis."

Sky Deutschland shares had shot up 6.6% to 6.74 euros by early afternoon in Frankfurt, valuing the entire equity at 5.92 billion euros ($8.15 billion).

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"BSkyB believes at the right value, this combination would have the potential to create a world-class multinational pay TV group," the Isleworth, England company said. "These discussions have not progressed beyond a preliminary stage, no agreement has been reached on terms, value or transaction structure and there is no certainty that a transaction will occur. "

The talks come almost three years after News Corp. abandoned a controversial 7.8 billion pound ($13.2 billion) offer for the remaining BSkyB shares amid outrage about a phone hacking scandal centered on News Corp.'s U.K. print operations and the now-defunct tabloid News of the World.

The scandal sparked a swinging, judge-led review of U.K. media practices and ethics and criminal trials including one against former senior News Corp. executives which is still runnng. It was also widely seen as influencing Murdoch's later decision to split his film and TV interests from his print operations.

Murdoch remains chairman of both companies, however, and any European pay-TV deal is likely to be subjected to tough scrutiny from U.K. media and broadcasting regulator Ofcom as well as the British government. The government has the power to intervene in media mergers where "plurality" is threatened. It did so when News Corp. bid for the rest of BSkyB, though allegations that the-then Culture Secretary Jeremy Hunt was biaised in favor of Murdoch almost cost the Conservative politician his career as the phone hacking furore reached fever pitch.

BSkyB noted that the talks will be handled by independent directors not linked to its largest shareholder. Independent directors are led by Chairman Nicholas Ferguson and Andrew Higginson, who is senior independent director and a former CFO of food retailer Tesco plc.

21st Century Fox said it's been reviewing its European pay-TV operations for some time.

"Over the years we've had numerous internal discussions regarding the organizational and ownership structure of the European Sky-branded satellite platforms. From time to time these conversations have included BSkyB, however no agreement between the parties has ever been reached," the company said.

BSkyB shares were down 2.3% by late morning at 870 pence, valuing its entire equity at 13.6 billion pounds.

Representatives of 21st Century Fox couldn't immediately be reached for further comment, and a BSkyB spokewoman declined to elaborate on the company's statement.

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