Rupert Murdoch’s News Corp. (NWSA) dropped a bid to gain full control of British Sky Broadcasting Group Plc (BSY) after U.K. lawmakers demanded the offer be scrapped because of a phone hacking scandal at its newspapers.
“It has become clear that it is too difficult to progress in this climate,” Chase Carey, News Corp.’s Chief Operating Officer, said in an emailed statement today. “News Corp. remains a committed long-term shareholder in BSkyB.”
The withdrawal of the 7.8 billion-pound ($12.5 billion) proposed bid for the 61 percent of Britain’s largest pay-TV broadcaster that News Corp. doesn’t already own is a blow to the company’s strategy to bolster digital operations and benefit from BSkyB’s rising cash flow. Prime Minister David Cameron’s coalition government had planned to side with the opposition Labour party to vote against the deal today.
News Corp., based in New York, faces accusations that journalists at the News of the World Sunday newspaper hacked into the phones of murdered schoolgirl Milly Dowler and terror victims and paid police for stories. The allegations prompted Murdoch to close the 168-year-old News of the World tabloid on which his media operations in the U.K. were founded.
BSkyB shares dropped 3.7 percent to 666.5 pence as of 2:22 p.m. in London trading.
News Corp., the owner of the Wall Street Journal and the Fox TV networks and film studios, had sought to defuse the political and media furor over phone hacking by pushing the U.K. government to refer to the bid to regulators, and thus delay the deal by at least six months.
In June 2010, the broadcaster rejected the offer from News Corp., asking for the bid to be raised by at least 14 percent. The company’s independent directors said at the time they would be prepared to accept an offer of more than 800 pence a share, higher than the 700 pence a share offered by News Corp.
London police have made at least seven arrests as part of the phone-hacking investigation, including that of Andy Coulson, one-time editor of the News of the World and former communications chief for Cameron. Coulson has denied any knowledge of reporters tapping phones when he led the paper.
Murdoch’s son, James Murdoch, 38, has since 2007 been in charge of News International, the U.K. publishing unit that included News of the World. Murdoch, the non-executive chairman of BSkyB, had formerly ran the satellite company for four years as CEO.
In a note to employees to announce the closure of the News of the World on July 7, the younger Murdoch said the company had misled the British Parliament. During hearings in 2007 and 2009, executives including Les Hinton, former News International chairman, and Colin Myler, News of the World editor, said that there was no evidence that more than one reporter had been involved in phone hacking.
News Corp. had been facing at least six investigations over the phone hacking scandal and the BSkyB bid. Rupert Murdoch, his son James, as well as News International CEO Rebekah Brooks have been summoned to appear before lawmakers about prior evidence employees had paid police to get stories.
BSkyB, based in Isleworth, England, on April 28 said fiscal third-quarter operating profit rose 5.2 percent as the pay-TV company added more clients. BSkyB could have helped Murdoch make News Corp.’s newspaper business more profitable by allowing him to bundle newspaper and pay-TV subscriptions and spread content over several media platforms.
Murdoch is leading industry efforts to get readers to pay for online content. He introduced online paywalls at the Times and News of The World newspapers and removed all news content from Google Inc. (GOOG)’s search engine. He also introduced a paid-for iPad news publication called The Daily in tandem with Apple Inc.
The BSkyB deal was opposed by a group of U.K. media companies, including owners of the Guardian, Daily Mail and Telegraph newspapers, which say the takeover would have had “serious and far-reaching consequences for media plurality.”
Cameron on July 13 laid the ground for Rupert Murdoch to be summoned to give evidence under oath to a public inquiry into the phone-hacking scandal as he sought to deal with what he called the “firestorm” engulfing media, police and politicians.
Cameron specifically included “proprietors” in the list of people that the inquiry, to be led by Lord Justice Brian Leveson, will have the power to summon. He said the inquiry will be in two parts: a review of press regulation to report within 12 months and an investigation into wrongdoing by press and police. The second part may be delayed by criminal proceedings, Cameron said.
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