BSkyB may fight order to sell down stake in ITV

While Sky could be keen to fight the decision as the satellite broadcaster stands to lose hundreds of millions of pounds in a forced disposal of shares, lawyers are also understood to be ready to challenge the legal point of what constitutes a definition of "material influence" in a company.

Secretary of State for Business and Enterprise John Hutton today ruled that the share raid on ITV by Sky was against the public interest, and that Sky must sell down its stake of 17.9% to below 7.5%.

Sky, chaired by Rupert Murdoch's son James, made its £940 million raid in November 2006 in what was seen as a cynical move to prevent a merger between ITV and Sky's pay-TV rival Virgin Media, which at the time was newly invigorated by the merger of cable company NTL with Sir Richard Branson's media interests.

The move caused a storm, and led ITV and Virgin Media to report Sky to the competition authorities.

After a ruling by the Competition Commission before Christmas, the Department for Business today said: "The Secretary of State has decided to make an adverse public interest finding, taking account of the Competition Commission's decision that this transaction results in a substantial lessening of competition within the UK market for all television.

"The Secretary of State has also decided to impose the remedies recommended by the Competition Commission to address the substantial lessening of competition identified in their report: divestment of BSkyB's shares in ITV down to a level below 7.5% and behavioural undertakings from BSkyB requiring the company not to dispose of the shares to an associated person, nor to seek or accept representation on the board of ITV and not to reacquire shares in ITV."

Hutton refused to disclose the time-frame over which Sky must sell down its holding in ITV, but industry speculation suggests that it is nine months. Sky bought its original stake at 135p a share, and ITV shares are now trading at just 72p. If Sky were to sell a 10.4% holding today, it would book a whopping £255 million cash loss on the transaction to go with the paper losses on its residual holding.

His ruling allows Sky four weeks in which to appeal, and the company indicated it may well challenge him.

It said in a brief statement: "The company will give careful consideration to the announcement and confirm any further steps in due course."

Sky could take its challenge to the Competition Appeal Tribunal on the grounds that it was prepared to give up its voting rights on the ITV shares, and that in such circumstance no lessening of competition would have taken place.

Lawyers are also understood to be arguing that the 7.5% level is highly arbitrary. Said one analyst: "At what point does a shareholder start or stop having a material influence? Is it 7.5% or 10% or 12%...?"