LONDON: Shares in British Sky Broadcasting dropped sharply Monday on growing doubts over News Corp.'s ability to take full control of the lucrative satellite broadcaster amid signs that the government is looking at ways to block the deal.
The pressure on News Corp.'s boss Rupert Murdoch, who has arrived in London to deal with the escalating crisis afflicting his media empire, ratcheted up after deputy Prime Minister Nick Clegg urged him to "do the decent and sensible thing" and reconsider the bid for BSkyB.
"I would simply say to him, look how people feel about this," Clegg said.
Doubts over the future of the deal were further reinforced by the news that the government minister dealing with the bid sought fresh advice on the fitness of News Corp. to hold a broadcasting license. News Corp. already owns 39 percent of BSkyB and has made a bid for the remaining shares. Until last week, it looked like Culture Secretary Jeremy Hunt would wave the bid through, subject to some relatively minor conditions.
Investors now think it's looking increasingly unlikely that the deal will go through. Whatever bid premium existed in BSkyB's share price has evaporated over the past week as the revelations over the phone-hacking at the News of the World tabloid newspaper accumulated and the police have escalated their investigation.
Sam Hart, an analyst at Charles Stanley, said it's looking "politically impossible" for Hunt to back the bid.
"Indeed, it is unlikely that approval could be granted until the criminal investigation into phone-hacking and subsequent related public enquiries have been completed, which could take years," Hart said.
By early afternoon, BSkyB shares were down 6.7 percent at 700 pence ($11.17) on the London Stock Exchange. Just a week ago, BSkyB's shares were trading as high as 850 pence, meaning the company has shed a little over 17 percent of its value, or nearly 2.7 billion pounds ($4.3 billion).
Alex DeGroote, analyst at Panmure Gordon, said he thinks the probability of News Corp. taking control of the 61 percent of BSkyB it does not already hold has drained to only 10 percent.
He also said it's not beyond the realms of probability that News Corp. may even have to sell the 39 percent in BSkyB it already holds following the news that Hunt is asking the communications regulator, Ofcom, whether News Corp. is "fit and proper" to hold a broadcasting license. If Ofcom decides it isn't, a license would be denied.
Hunt said he is also seeking fresh advice from the competition regulator, the Office of Fair Trading, whether it stands by earlier advice that the takeover was acceptable in light of the decision to close the News of the World.
Further pressure is coming from the opposition Labour Party, which is working to force a vote in the House of Commons on a motion asking the government to delay a decision on BSkyB. Liberal Democrats, the junior partner in Prime Minister David Cameron's government, have signaled that they are ready to support that motion.
Murdoch has arrived in London to lead his company's response to the scandal that has engulfed his organization over the past week since damaging revelations over the scale of phone hacking at the News of the World, which closed Sunday after 168 years. He met on Sunday with Rebekah Brooks, chief executive of News Corp.'s British unit, News International.
Brooks was editor of the News of the World at the time that employees of the paper allegedly hacked the phone of 13-year-old Milly Dowler, who was missing and later found murdered — Dowler's parents are meeting with deputy Prime Minister Nick Clegg Monday to discuss the hacking. Those undertaking the hacking are said to have deleted some of Dowler's voicemail messages, raising false hope that the girl was alive and using the phone.
That revelation caused public outrage, and triggered the sharp slide in BSkyB shares as well as the shock decision to close the News of the World after 168 years of publication. For News Corp., which owns Fox television and the Wall Street Journal as well as three other British papers, the News of the World represented a relatively small sacrifice.
Prime Minister David Cameron on Friday announced two public inquiries into the scandal: one led by a judge looking into phone hacking by newspapers and possible corruption involving police officers taking cash for information, and another into press regulation.
Brooks and several executives have offered to be interviewed by police as witnesses, a source at News International confirmed, speaking on condition of anonymity.