Herbies hangs on to BSkyB despite A&O mandate on ITV share swoop

A series of conflicts has gifted Allen & Overy (A&O) the lead role advising BSkyB on its surprise purchase of £940m worth of shares in ITV.

But the purchase, equal to a 17.9 per cent stake in the company, has raised competition queries, and the move comes at the same time as rival satellite operator NTL made an unwelcome £9bn bid for ITV.

The mandate marks A&O’s second major instruction from the broadcaster after the firm advised BSkyB in October 2005 on its recommended takeover of the pan-European broadband network company Easynet Group.

BSkyB traditionally favours longstanding corporate counsel Herbert Smith. However, the firm is not acting for BSkyB on the deal with ITV because of a conflict.

Despite the increasing work that A&O is undertaking for BSkyB, a spokesperson at the broadcaster said: “I’m happy to confirm that Herbert Smith remains Sky’s primary external legal adviser.”

Herbert Smith is representing Virgin Atlantic in the Office of Fair Trading’s (OFT’s) investigation into price-fixing of fuel surcharges among airlines. The firm is also one of Virgin Group’s key corporate counsel and advised the group on the sale of Virgin Mobile to NTL in April. Sir Richard Branson, the founder of Virgin Group, is also NTL’s largest shareholder.

However, A&O was also involved in that deal on the Virgin side, advising the board of Virgin Mobile. It also won a place on Virgin Group’s panel in 2005, alongside Herbert Smith.

A&O said in a statement to The Lawyer: “The instruction from BSkyB was cleared through our usual conflict checking procedures and we are satisfied that there is no breach of the conflict rules.”

Herbert Smith would not comment other than to say that “BSkyB and Virgin remain active clients of the firm”.

The deal raises serious competition issues, as the move by BSkyB to build a significant stake in ITV made Branson implore the OFT to intervene. On 19 November Branson described BSkyB’s purchase of the stake as a “blatant attempt to distort competition even further by blocking any attempt to create a strong and meaningful competitor” – a claim BSkyB strongly contests.

Despite his comments Branson is yet to officially complain to the OFT. But A&O has fielded head of antitrust John Wotton to advise BSkyB on competition issues.

Ofcom, meanwhile, has invited both ITV and BSkyB to comment on whether the stake constitutes a change of control. Under cross-media ownership rules, BSkyB cannot take more than a 20 per cent stake in ITV.

NTL has instructed teams of lawyers from Ashurst and Fried Frank Harris Shriver & Jacobson on its bid for ITV.