By Ben Martin and Noor Zainab Hussain
LONDON (Reuters) - A protracted $34 billion (25.66 billion pounds) bidding war for European broadcaster Sky <SKYB.L> between U.S. rivals Comcast <CMCSA.O> and Twenty-First Century Fox <FOXA.O> could be settled by a quick-fire auction on Saturday, UK regulators said on Thursday.
Britain's Takeover Panel said that it was prepared to take the rare step of intervening in the battle for Sky by running an auction that lasts for a maximum of three rounds.
The process will start if neither Comcast nor Fox have admitted defeat in the fight for Sky by 1700 London time (1600 GMT) on Friday, the Panel said.
The auction will then take place on Saturday and will finish during the evening, when the regulator will announce the level of the bids submitted by the suitors.
It would mark a dramatic resolution of Sky's fate, which has been up in the air ever since Fox made its first bid for the 61 percent of Sky that it does not already own in December 2016.
Fox's takeover was held up by regulatory scrutiny of the proposed deal and was then gatecrashed by Comcast earlier this year.
The world's biggest entertainment group Comcast currently leads Fox in the fight with a 14.75 pound a share offer for control of Sky that values the broadcaster at 25.9 billion pounds.
That trumped the 14 pound a share offer made by Fox earlier in July and is 37 percent above Fox's original 10.75 pound a share bid in 2016.
Fox's bid for Sky is backed by Walt Disney <DIS.N>, which in June agreed a separate deal to buy TV and film assets from Fox, including its existing 39 percent Sky shareholding, for about $71 billion.
An auction for Sky, which broadcasts to 23 million households across Europe, would the biggest ever deal in the UK to be decided by a panel-run auction.
There have only been three British takeover situations since 2007 that have involved auctions handled by the regulator, including the 6.2 billion-pound sale of Anglo-Dutch steelmaker Corus to India's Tata Steel <TISC.NS>, according to analysis by Reuters.
A fourth battle ended just before an auction was due to start when Royal Dutch Shell <RDSa.L> abandoned its takeover attempt of gas explorer Cove Energy in 2012, allowing Thailand’s PTT Exploration & Production to clinch a $1.9 billion deal. That marked the last time the Panel invoked the auction procedure.
"In order to provide an orderly framework for the resolution of this competitive situation, and in accordance with Rule 32.5, the panel executive has, after discussions with the parties, established an auction procedure," the regulator said in a statement.
Sky was formed in 1990 when Murdoch merged his fledgling British satellite TV service with a rival, and is a broadcaster of sports, films and TV shows.
The fight for Sky is part of a bigger battle being waged in the entertainment industry as the growth of Netflix <NFLX.O> and Amazon <AMZN.O> force the world's traditional media giants to spend tens of billions of dollars to keep pace.
In the first round of the proposed Sky auction, the suitor with the lowest offer at the start of the process may make a higher bid and the other suitor can do so in the next round.
In the third round both suitors can increase their offers. It is possible that auction could end with both Fox and Comcast offering the same price for Sky, the Panel said.
(Noor Zainab Hussain contributed reporting from Bengaluru; Editing by Jason Neely/Keith Weir)