London - Britain was looking for a way out of approving
media baron Rupert Murdoch's multi-billion dollar deal to buy broadcaster BSkyB
amid a phone-hacking scandal that has damaged the prime minister and raised
broader questions about politicians' relations with the media.
Deputy Prime Minister Nick Clegg 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.
New allegations on Monday included reports it had bought
contact details for the royal family from a policeman and tried to buy private
phone records of victims of the September 11 2001, attacks on the United
States.
"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.
The government, which faces a stormy parliamentary debate on
Wednesday, 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 broadcast 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 bid.
Shares in BSkyB dropped more than 7% on Monday 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 one top 30 investor in BSkyB told
Reuters they 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,
which would be his company's largest acquisition. Sources close to his company
said he could consider other options to get it through if he felt the
government was going to block or delay it, but they did not elaborate.
Eight people, almost all journalists, have been arrested so
far in a police inquiry into the allegations, which include that police may
have been paid for information and a company executive could have 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
in a television interview.
Hunt's strong comments and the approach to the regulators
may have been designed to give the government some political cover ahead of
Wednesday's debate, lawyers said, as from a legal standpoint the takeover deal
and hacking scandal are not linked.
Both Hunt and Prime Minister David Cameron have been accused
by left-leaning 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 spokesperson, before he was forced to resign
over the scandal.
Labour party leader Ed Miliband said on Sunday he would
force parliament to vote this week if Cameron did not take steps to halt News
Corp's $14bn bid for the 61% of BSkyB it does not already own.
He said on Monday the government had moved reluctantly.
"They are doing it not because they want to, but because they have been
forced to," Miliband said, urging Murdoch to "drop the bid for
BSkyB".
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 they could vote with Labour on the
issue.
It would also give Labour a chance to cast itself as the
champion of a public angered by allegations that News of the World reporters
and editors were complicit in breaking into voicemails, including those of
bombing victims, for stories.
"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. A spokesperson for the prime minister declined to
comment.
Hunt's letter to the regulator asked it to consider
whether News Corp's undertakings which were 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, sustainability of practicalities 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 was driven into 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.
Christina Camargo-Lima, walking on her way to work past
Murdoch's London flat on Monday morning, welcomed criticism of Murdoch.
"I think it's time the mogul came down. They just can't control democracy
like that."
Lurid headlines
The News of the World is best known for its lurid headlines
exposing misadventures of the rich, royal and famous. Its last headline said
simply Thank You & Goodbye over a montage of some of its most
celebrated splashes of the past 168 years.
On Monday, the BBC said News International had bought phone
details for the royal family from a security officer, citing company emails.
"The implication, therefore, is that the security of the head of state was in some sense being threatened," said BBC business editor Robert Peston.
Citing an unidentified source, the Daily Mirror newspaper reported that News of the World journalists had offered to pay a New York police officer to retrieve the private phone records of victims of the September 11 2001, attacks.
There was no immediate comment from the company.
Murdoch dined on Sunday in an upmarket hotel with his
British newspaper arm's chief executive Rebekah Brooks, a friend of Cameron's
and editor of the News of the World at the time of the alleged phone-hacking,
and his son and heir apparent, James. Cameron has since said Brooks should step
down.
The affair has thrown a harsh spotlight on the long-standing ties between British politicians and Australian-born Murdoch.
Cameron has insisted that the government has no legal power
to block the BSkyB deal if it is satisfied that enough media plurality -
competition - will be maintained. It had already indicated it would accept News
Corp's assurances on this count.
"Fit and proper"
The Independent said the government had latterly hoped the
broadcasting regulator Ofcom would stop the deal going through on grounds that
News Corp directors were not "fit and proper" to run BSkyB, but this
was unlikely to happen until a possibly lengthy police investigation had been
completed.
Instead, it said lawyers in the department of culture and
media were now looking at using competition criteria to block the deal.
That would still be embarrassing for the prime minister, who
has ordered a public inquiry and also admitted media barons had too much
influence over politicians, but arguably less damaging than a split with his
coalition partners.
Blocking the BSkyB deal on grounds of media plurality would
also be better for Murdoch than if he and his team were found to be not
"fit and proper" to run the broadcaster, as that could see him lose
his existing 39% of the company.