The competition regulator has knocked back Seven Group Holdings' proposed bid for Consolidated Media, clearing the way for Rupert Murdoch's News Ltd to take over the pay TV holding company.

Free-to-air television operator Seven, headed by rival media mogul Kerry Stokes, owns almost a quarter of Consolidated Media and wanted the firm for its stake in dominant pay TV-operator Foxtel and content provider Fox Sports.

The Australian Competition and Consumer Commission this morning said any deal by Seven would make it too strong a bidder for commercial sports rights.

"The proposed acquisition would put Seven Network in a position of advantage over other free-to-air networks in relation to .... the acquisition of sports rights," ACCC chairman Rod Sims said.

It "would significantly reduce the ability of Seven Network's competitors to acquire such content," he added.

Seven had sought clearance from the ACCC on a potential bid after the James Packer-backed ConsMedia received a $2 billion takeover offer by News Ltd.

Consolidated Media shares rose 4 cents, or 1.2 per cent, to $3.42 in early trade, below News's offer of $3.50 a share. Its high for the year was $3.46, reflecting expectations the Seven bid would not be allowed.

Seven West shares were up 1 cent, or 0.8 per cent, at $1.27, while News Corp shares were down 35 cents, or 1.4 per cent, at $24.21.

Seven will vote for News bid

The decision was widely expected and paves the way for News Ltd to take over ConsMedia, which was given the watchdog's blessing in June.

As a result of the ACCC's decision, Seven said this morning it now intended to vote in favour of News Ltd’s bid for the business.

ConsMedia’s directors have already recommended News’ $1.94 billion takeover offer, and a vote is due to be held later in October.

The deal will give News full control of Fox Sports, which is half-owned by ConsMedia. It would also increase News' holding of Foxtel to 50 per cent from 25 per cent.

ConsMedia’s deputy chairman and major shareholder James Packer has said he intends to vote in favour of the deal, and a favourable vote by Seven Group would see the takeover approved.

A News takeover of ConsMedia would also mark Mr Packer's final exit from media assets as he expands his interests in gaming.

ConsMedia holds a 50 per cent stake in pay TV channel producer Fox Sports and 25 per cent of Australia’s largest pay TV operator Foxtel. If its takeover bid is successful, News will take control of Fox Sports and own half of Foxtel.

Cash for Caterpillar

Analysts had said before today's ACCC decision Mr Stokes was more likely to sell to News Corp, or seek concessions from the global media giant, rather than gear up with more debt and lob a competing bid.

‘‘We continue to believe that the group does not currently have sufficient balance sheet capacity to make an offer,’’ JPMorgan analyst Anthony Passe-de Silva said.

Seven would have needed to pay at least $1.46 billion for the CMH shares it does not currently own.

The cash Seven receives from News Corp will not be lying idle, Seven needs the cash to feed into its Caterpillar franchise, Westrac, said Mr Passe-de Silva.

‘‘In particular, continuing growth in demand for heavy equipment in WA, NSW and ACT for Westrac Australia requires the group to provide additional working capital. Weaker than expected demand in north east China has also led to WesTrac China carrying more inventory’’, he said.

with Chris Zappone and Colin Kruger