BSkyB must slash ITV stake and faces £250m bill

The Government today ruled that broadcasting giant BSkyB must offload some of its controversial 17.9 per cent stake in ITV.

Secretary of State for Business and Enterprise John Hutton has told Sky it must sell-down the shareholding to below 7.5 per cent and cannot take a seat on ITV's board.

The decision, which supports earlier recommendations from the Competition Commission, could cost Sky around £250 million following sharp falls in ITV's share price.

Mr Hutton found that Sky's stake in the group, bought for £940 million in November 2006, "resulted in a substantial lessening of competition within the UK market for all television".

Sky - until recently headed by chief executive James Murdoch who took over from his father as non-executive chairman last month - must now sell shares to below the 7.5 per cent threshold.

The group will have a set timeframe to complete the shares sell-off, although this has not been revealed on Sky's request.

Sky has four weeks to appeal the decision and has already hired City law firm Allen & Overy ahead of today's ruling.

But the group today remained tight-lipped on any plans to appeal, saying only that it would "give careful consideration to the announcement and confirm any further steps in due course".

ITV said it "warmly welcomed" the decision.

"We believe this decision is in the best interests of the overwhelming majority of our shareholders," added the commercial broadcaster.

Competition watchdogs recommended last month that Sky should reduce its stake in ITV to below 7.5 per cent.

Sky could take a hit of hundreds of millions of pounds, with the holding having lost more than 40 per cent of its value as ITV shares have plunged.

Sky, which releases its half-year results next week, bought its stake when shares were valued at 135p each.

They have since plummeted, last week hitting an all-time low of 70.7p amid fears that an economic slowdown would trigger an advertising downturn.

Based on the current share price, the holding has lost around £430 million in value.

However, Sky may have at least six months to sell the shares, during which time the share price may rise.

It may also be able to negotiate a premium from a buyer.

But analysts said that Sky will have to reveal a write-down in its interim results due next week that would, under accounting rules, have to take into account the possible losses on the entire 17.9 per cent stake.

Sky's "shares raid" on ITV scuppered the plans of Virgin Media - then NTL - to merge with ITV, angering major Virgin Media shareholder Sir Richard Branson.

Investigations by watchdogs Ofcom and the Office of Fair Trading concluded that the stake raised "significant" competition and public interest concerns, leading to the Competition Commission inquiry which was launched in May.

Sky offered to put 3 per cent of its holding and voting rights into a trust to allay concerns that it would influence strategy.

The broadcaster has always maintained that it has not broken any merger rules and bought the shares as a long-term investment.

However, Virgin Media and ITV have both argued in submissions to the commission that Sky should sell off its entire 17.9 per cent holding.