BSkyB shares hit by Murdoch deal doubts

London  - BSkyB shares dropped 5% after the UK government said it would consider the closure of the News Of The World tabloid in its review of Rupert Murdoch's bid for the British pay-TV company, potentially pushing back any approval.

The Department for Media has examined News Corp's planned $14bn takeover of the British pay-TV company BSkyB in terms of whether it will affect media plurality and the number of "media voices" present in Britain.

After the sudden closure of Britain's biggest-selling Sunday newspaper after a phone hacking scandal, the government warned that its final decision could "take some time" due to the number of responses submitted to a final consultation, all adding to an increasingly uncertain picture around the deal.

"The Secretary of State ... will consider all relevant factors including whether the announcement regarding the News of the World’s closure has any impact on the question of media plurality," it said.

Shares in BSkyB were trading around 850 pence at the beginning of the week but have since slumped below 780 pence as the crisis engulfing Murdoch's media empire and its conduct in a phone hacking scandal deepened.

The British government had always said that the phone hacking scandal and BSkyB takeover were not linked from a legal standpoint but analysts, who had widely expected the deal to be approved, started to turn more cautious on Friday.

"I don't see how this deal can go ahead now," said Panmure Gordon's Alex DeGroote while warning the speed at which events are unfolding meant investors were "into totally uncharted territory".

He cut his price target on BSkyB shares to 730 pence from 750 pence on what he judged to be a higher risk that the proposed deal with Murdoch's News Corp would collapse.    

However, the fact almost 160 000 people have responded to the government consultation could help as it means it will take months to work through the process, allowing it to avoid making a final decision while the story is still raging.

Prime Minister David Cameron, himself under fire for being too close to News Corp executives, again stressed that the government would follow proper legal procedures.

He also said that a general inquiry into the way the press operate would begin this summer, raising the chance that this could feed in to the Sky deal.

"Governments must follow the proper legal processes," he told reporters. "That is exactly what Jeremy Hunt is doing. His role is to take the advice of independent regulators. And as his department made clear, given the events of recent days, this will take some time."