Branson mounts legal challenge to Murdoch's ITV stake

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Sir Richard Branson, the biggest shareholder in cable group NTL, will this week appeal directly to competition regulators to block the 18 per cent stake that Rupert Murdoch's BSkyB took in ITV.

In an increasingly fierce confrontation between the Branson and Murdoch camps, NTL will argue that Sky's acquisition of the stake in ITV falls foul of the "general merger" provisions of the 2002 Enterprise Act.

NTL will also tell the Office of Fair Trading that the Sky move was a "blatant attempt to distort competition even further by blocking any attempt to create a strong and meaningful competitor". NTL, Sky's main rival in the subscription television market, has stated it wants to buy ITV outright - a plan thrown into disarray by the news on Friday night that Sky had bought a 17.9 per cent stake for £940m.

Sir Richard said: "This [Sky] move is seriously damaging to the interests of viewers, programme makers, artists and shareholders and the time has come for regulators, politicians and consumers to finally show that they're willing to stand up to reckless and cynical attempts to stifle competition and secure creeping control of the British media."

NTL believes that Sky should be forced to reduce its ITV stake or sell it entirely - an outcome that would almost certainly involve taking a huge loss.

NTL believes that while Sky was careful to comply with the terms of the 2003 Communications Act, under which it is barred from buying more than 20 per cent of ITV, it has been caught out by the Enterprise Act. A clause in this Act allows competition authorities to intervene against a shareholder with more than 15 per cent of a business that has a "material influence" over the commercial decisions of that business.

Alastair Gorrie, a leading competition lawyer and a partner at City law firm Orrick, said that it was a "pretty finely balanced" question whether regulators would back NTL and it was "not obvious" that Sky would exercise material influence at ITV. He did say that an argument could be put forward that Sky was seeking to scotch the emerging competition between cable and its satellite platform. "Sky is not afraid to push things right to the limit and this is another example of that," Mr Gorrie said.

NTL will cite the example of Sky's interest in Manchester United football club in 1999, which it sees as a direct parallel. The competition authorities forced Sky to reduce the 29.9 per cent stake it had acquired in the club. However, in that case, Sky had stated its intention of making a bid to buy Manchester United outright.

Sky hit back at the NTL accusations yesterday: "Sky has made clear that it wishes to support the board of ITV in its continuing stewardship of the company. As Sky said, it does not intend to seek a seat on the ITV board. Sky's investment in ITV does not enable it to exercise material influence over ITV's policy and operations and hence is not a merger under UK merger rules."

The satellite group insisted that it bought the shares - at well above the market price - because it believed that they would have greater long-term value. NTL said that Sky only wanted to frustrate the NTL/ITV deal.

Sir Richard said: "BSkyB knows an NTL/ITV merger would enable the two companies together to compete on a more level playing field with their own business. Any merger of ITV's content with a distribution platform such as NTL's would reinvigorate ITV as the leading commercial broadcaster in the UK, and give it the strength to compete for premium programming and make the investment in quality programming necessary to win back its audiences."