Bid to block BSkyB buyout

Britain was looking for a way out of approving media baron Rupert Murdoch's multibillion-dollar deal to buy broadcaster BSkyB because of a phone-hacking scandal that has damaged the prime minister and raised broader questions about politicians' relationships with the media.

Deputy Prime Minister Nick Clegg, from the junior coalition partner the Liberal Democrats, urged Murdoch to reconsider the bid after revelations that one of his newspapers hacked into the phones of murder victims and relatives of Britain's war dead.

"Do the decent thing, and reconsider; think again about your bid for BSkyB," Clegg told BBC News after meeting relatives of one of the victims of phone-hacking, a murdered schoolgirl.

Murdoch's News Corp yesterday paved the way for the British government to refer its proposed deal to the Competition Commission, potentially defusing a political row, but setting itself up for long delays.

News Corp said it was withdrawing undertakings it had made - including the spinning off of Sky News - that would have allowed it to bypass a full Competition Commission inquiry.

News Corp said it still believed that the BSkyB deal would not give it too much dominance over British news media.

The government, which faces a stormy parliamentary debate tomorrow, earlier asked media regulator Ofcom and the consumer watchdog to reassess the bid in the light of the scandal, a move that could provide a basis to block the buyout.

The new request to Ofcom, which is already assessing whether News Corp is a "fit and proper" holder of a broadcasting licence, and the Office of Fair Trading, follows a report in the Independent newspaper that government lawyers were drawing up plans to block the BSkyB deal.

Shares in BSkyB dropped more than 7% yesterday morning after a similar fall on Friday. News Corp shares fell more than 7% in New York last week.

"We believe the deal is all but dead," Panmure Gordon analyst Alex DeGroote said.

The head of UK equities at a top 30 investor in BSkyB said he expected the deal to be delayed.

"I believe the takeover will happen in due course but it is unlikely to go through until next year at the earliest," the investor said.

Murdoch flew to London on Sunday from the US to try to contain the damage to his media empire, which wields influence from Hollywood to Hong Kong, and includes US cable network Fox and the Wall Street Journal, as well as Britain's biggest-selling paper, The Sun.

He has shown no sign of backing away from the BSkyB deal.

Several people have been arrested and others are likely to give evidence to a police inquiry into the hacking allegations, which include reports that the police had been paid for information and a company executive destroyed evidence. News Corp's British media arm firmly denies any obstruction of justice.

"You wouldn't be human if you weren't totally appalled by the revelations that have come to light, they're just stomach churning and I think everyone feels totally shaken," Culture Secretary Jeremy Hunt said.

Hunt's strong comments, and the approach to the regulators, might have been designed to give the government some political cover ahead of tomorrow's debate, lawyers said, because, from a legal standpoint, the takeover deal and hacking scandal are not linked.

Both Hunt and Prime Minister David Cameron, of the centre-right Conservatives who lead the coalition government, have been accused by left-wing Labour of being too close to Murdoch and too slow to act to uncover the full extent of the scandal.

Andy Coulson, a former editor of the News of the World, was, until earlier this year, Cameron's spokesman. He was forced to resign because of the scandal.

Labour party leader Ed Miliband said on Sunday that he would force parliament to vote this week if Cameron did not take steps to halt News Corp's bid for the 61% of BSkyB it does not already own.

He said yesterday that the government had moved reluctantly.

"They are doing it not because they want to but because they have been forced to," he said.

A vote in parliament could split the coalition between Cameron's Conservatives and the Liberal Democrats who, traditionally less favoured by Murdoch's media, have signalled that they might vote with Labour on the issue.

"We are working on a plan to suspend the deal while the police investigation is taking place," the Independent quoted a senior government source as saying.

Hunt's letter to the regulator asked it to consider whether News Corp undertakings made to secure the deal were still credible, given the revelations.

"Given the well-publicised matters involving the News of the World in the past week ... I would be grateful if you could let me know whether you consider that any new information that has come to light causes you to reconsider any part of your previous advice to me, including your confidence in the credibility of the undertakings offered by News Corporation," the letter said.

Murdoch's own Sunday Times reported that a 2007 internal investigation at the News of the World had found evidence that phone hacking was more widespread than the company had admitted and that staff had illegally paid police for information.

As Murdoch, 80, was driven to his London headquarters on Sunday, he held up the final edition of the News of the World, the 168-year-old newspaper he bought in 1969 then closed last week in a bid to stem the crisis.