Government prepares for swift action on Sky's ITV share deal

Sky bought 17.9% of ITV in 2006 in a deal widely seen at the time as an audacious move to block the broadcaster's sale to NTL, shortly before NTL was re-branded as Virgin Media.

The deal was investigated by the Competition Commission, which said that it was not in the public interest. Though it found that Sky's ownership of that much of ITV would not adversely affect news coverage, it did find that it would affect the market for television generally.

The deal made Sky the biggest shareholder in ITV, and the Competition Commission said that it worried about the ability of Sky to affect long term strategic decisions relating to ITV.

The Government decided last year that Sky should be forced to reduce its shareholding to 7.5%, and that it should not seek to nominate a board member of ITV or to reacquire shares in the company.

Sky appealed that decision to the Competition Appeals Tribunal (CAT), asking that it overturn both the original findings of the Competition Commission and the decision of the Government on specific measures.

In September last year the CAT said that it would not overturn those decisions and refused leave to appeal.

Sky has now asked the Court of Appeal directly for permission to seek to overturn the ruling.

While waiting for the Court of Appeal to decide whether or not to allow an appeal, the Government has begun a consultation process to allow it to act immediately, should the Court rule in its favour.

The Department for Business, Enterprise and Regulator Reform (BERR) has published the draft undertakings it will require Sky to sign in order to carry out the Government's order.

Those undertakings bind Sky to sell all but 7.5% of its shares, though the time period during which this will have to happen will be a secret. It forces it to agree not to sell those shares to people associated with Sky or its parent company, to agree not to seek to appoint an ITV board member and to agree not to buy more ITV shares.

"The Department for Business is today commencing the necessary consultation on these draft undertakings to ensure swift implementation of the remedies should the Secretary of State's decision be upheld by the Court," said a Government statement.

Responses to the undertakings are sought by 23 January.

When Sky bought its shares they were trading for 135p. This week they are trading for 41.5p, making its £940 million stake worth just £289 million today.