Sky-Canal Merger Seen as Unlikely

A merger of France’s Canal Plus, the No. 1 pay-TV company in Europe, and British Sky Broadcasting Group, Europe’s No. 2 pay-TV company, will face almost insurmountable cultural and regulatory obstacles, analysts said.

The two companies have discussed forming a Pan-European pay-TV superpower, the Wall Street Journal reported Tuesday, citing people familiar with the situation. Both declined to comment on the report. Canal Plus said it regularly talks with all partners and competitors in the media industry.

Rupert Murdoch, whose News Corp. owns 40% of British Sky, has so far failed to forge alliances with TV companies in Italy and Germany--in part because of regulatory obstacles. An agreement with Canal Plus would give Murdoch access to the French market as well as to Italy, Spain and the Netherlands, but it would probably meet antitrust disapproval.

“Markets love monopolies, which is why the shares have gone up, but regulators do not,” said Anthony de Larrinaga, an analyst at WestLB Panmure in London. “Regulatory issues have unraveled comparable sorts of deals before.”

Analysts noted that Karel Van Miert, competition commissioner for the European Union, blocked a planned digital TV joint venture between Germany’s Kirch Group and Bertelsmann last year and will probably block an agreement between British Sky and Canal Plus.

The EU is already taking a close look at Canal Plus’ acquisition of an indirect stake in British Sky through French media company Pathe. French newspaper La Tribune reported that the commission is opening an investigation into the 29.88% stake that Canal Plus and its parent, Vivendi, have built up in Pathe. Pathe owns 17% of British Sky.