Can News Corp. regroup?

Fallout forces new BSkyB strategy

As more of News Corp.’s U.K. newspapers were accused of illicit practices, Rupert Murdoch’s embattled News Intl. unit received still more bad news Monday when the U.K. government decided to refer the approval of its takeover bid for BSkyB to the antitrust Competition Commission — a move that could delay the regulatory review process for months if not years.

The government’s move followed the announcement Monday by News Corp. that it would withdraw its previous proposal to fast-track its acquisition of the remaining 61% of BSkyB. The proposal had been designed to prevent the deal from being referred to the Competition Commission.

The company had promised to relinquish control of BSkyB’s news channel Sky News as part of its proposed deal with the government, in order to answer concerns about the deal’s alleged threat to media plurality.

Despite the setbacks, News Corp. outwardly remained undaunted in the face of mushrooming allegations — including a report that News Corp.’s Sun and Sunday Times accessed sensitive personal and family information of former Prime Minister Gordon Brown.

News Corp. said in a statement it was “ready to engage with the Competition Commission on substance” and expressed confidence that its bid for BSkyB would pass the plurality test.

“News Corp. continues to believe that, taking into account the only relevant legal test, its proposed acquisition will not lead to there being insufficient plurality in news provision in the U.K.,” the company said.

However, the financial markets seemed to disagree. Shares in BSkyB fell 7.5% on Monday to £6.94 ($11.04). This follows a 12% fall last week, from £8.50 ($13.57) on July 4, when it was assumed the deal would be greenlit immediately. In the U.S., on a down day overall for the major stock indexes, News Corp. shares fell $1.27, or 7.58%, to close at $15.48.

The political storm in the U.K. has prompted a flood of critical commentary on both sides of the pond about the company and its corporate governance given Murdoch’s tight control of his empire. News Corp.’s heir apparent, deputy chief operating officer James Murdoch, has also been under scrutiny for his leadership amid the internal and external probes at business units under his oversight. Some observers have suggested that Rupert Murdoch may have to sell News Intl. to stop the contagion spreading to his U.S. businesses.

Murdoch’s biographer Michael Wolff tweeted Monday, “Get out of Dodge strategy being discussed at News Corp: Sell all of News Int.”

As the scandal widened, U.K. government manuevering on the long-pending $12 billion BSkyB takeover also picked up speed. On Monday, U.K. Culture Secretary Jeremy Hunt asked media regulator Ofcom and consumer protection agency the Office for Fair Trading to look again at whether the deal should be allowed to go ahead. Hunt asked the orgs to advise him about how to proceed in the light of the latest revelations in the phone hacking scandal involving the News of the World newspaper, which was run by News Corp. subsid News Intl. until the paper was shuttered Sunday.

Ofcom has the power to remove News Corp.’s license to broadcast if it concludes that its senior execs and leading shareholders fail its “fit and proper person” test.

A further threat for the BSkyB deal comes from a motion that the opposition Labour Party, with the support of leading figures in the Liberal Democrats, is set to put before Parliament on Wednesday. This will seek to delay approval for the deal until all criminal investigations involving the News of the World are concluded, which could take several years.

The ruling Conservative-Liberal Democrat coalition government has grown increasingly nervous following a tumultuous week when further allegations of illegal activity by News of the World staff came to light.

It also coincided with the arrest of several ex-News of the World employees, including Andy Coulson, the paper’s former editor who later became an aide to Prime Minister David Cameron.

But new revelations about alleged misdeeds by News Intl. journos are cropping up faster than the competition can cover them. On Monday, the Guardian reported that the Sun and the Sunday Times had illegally procured information about former prime minister Brown during a 10-year period that included his time as chancellor of the exchequer.

The Sun is alleged to have illegally accessed the medical records of Brown’s son, who had cystic fibrosis, while the Sunday Times is accused of obtaining Brown’s personal financial data through deception.

News Intl. claimed Monday that the information was obtained by legitimate means.

A spokeswoman for Brown said Monday that the former prime minister was shocked by the alleged “criminality and the unethical means by which personal details have been obtained” about his family. His wife, Sarah, tweeted that the information was very personal and it was “really hurtful if all true.”

News Intl. spokeswoman Daisy Dunlop said the company had taken note of the accusations and that in order to investigate the company asks “that all information concerning these allegations is provided to us.”

Meanwhile, the BBC claimed that News of the World staff had allegedly bribed a police officer who was part of the royal family’s protection squad to obtain the private phone numbers of all the royal family’s staff.

(The Associated Press contributed to this report.)

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