UPDATE: Regulator Bars Rival ConsMedia Bid, Clears Way For News

-- Regulator says Seven can't bid for Consolidated Media

-- Decision clears the way for News Corp.'s A$1.94B offer

-- Seven to sell its Consolidated Media shares to News Corp.

(Recasts first paragraph to add implications of the regulator's decision on News Corp.'s bid for Consolidated Media, background and details throughout)

By Ross Kelly

SYDNEY--A potential hurdle to News Corp.'s (NWS) 1.94 billion Australian dollar (US$1.98 billion) takeover bid for cable television company Consolidated Media Holdings Ltd. (CMJ.AU) was cleared Thursday when Australia's competition regulator barred Seven Group Holdings Ltd. (SVW.AU) from making a rival offer.

The decision now opens the way for the global media and entertainment company to close a deal that will give it considerable influence over Australia's cable television sector, where penetration rates remain below more mature U.S. and European markets.

The opposition by the Australian Competition and Consumer Commission, or ACCC, to a bid by Seven Group for Consolidated Media indicates the regulator is uncomfortable allowing deals between cable television companies and their free-to-air rivals. In particular, it fears any company gaining excessive power when bidding for lucrative rights to show major sports events, such as Australian Rules football games.

Seven Group, controlled by media and mining equipment billionaire Kerry Stokes, owns around 24% of Consolidated Media and was pondering whether to outbid News Corp., owner of The Wall Street Journal.

In June, Seven Group asked the ACCC to assess whether a rival bid would generate competition concerns and was awaiting the regulator's final response before making its next move.

In light of the regulator's resistance, Seven Group said Thursday it has decided to sell its shares in Consolidated Media into News Corp.'s offer. Tha ACCC has already approved News Corp.'s bid.

Consolidated Media's controlling shareholder, gaming tycoon James Packer, had already agreed to sell his 51% holding to News Corp., meaning News Corp. has all but sown up the deal ahead of a formal Consolidated Media shareholder vote slated for Oct. 31.

Seven Group is an investor in Seven Network, Australia's most popular free-to-air television channel, while Consolidated Media owns 25% of cable company Foxtel and 50% of Fox Sports. As a result, a merger between the two would give companies associated with Mr. Stokes substantial interests in Australia's biggest cable and free-to-air broadcasters.

"The ACCC concluded that the proposed acquisition is likely to result in a substantial lessening of competition in the market for free-to-air television services," the regulator said in a statement.

The ACCC's stance has wider implications for other potential deals in Australia's media landscape, particularly if companies with an interest in cable such as Telstra Corp. (TLS.AU) and News Corp. consider deals with privately held Nine Network or listed companies Ten Network Holdings Ltd. (TEN.AU), Seven Group and Seven West Media Ltd. (SWM.AU).

The remaining 50% of Consolidated Media is currently split equally between News Corp. and Telstra, while News Corp. owns the remaining 50% of Fox Sports.

The ACCC initially expressed reservations about a Seven Group bid last month in a preliminary assessment, but has been known to soften its position in its final ruling on previous occasions. Original concerns expressed in its preliminary analysis of Foxtel's bid for regional pay-TV rival Austar were later overturned with conditions following further consultation with relevant stakeholders.

Write to Ross Kelly at [e-mail]

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