News Corp., BSkyB Shares Drop After Bid Referred to U.K. Competition Body

News Corp. (NWSA)’s 7.8 billion-pound ($12.4 billion) bid for British Sky Broadcasting Group Plc (BSY) faces a review by the top U.K. competition authority that will take at least six months as a probe into phone hacking widens.

Rupert Murdoch’s News Corp. declined $1.27, or 7.6 percent, to $15.48 in Nasdaq Stock Market trading at 4 p.m. New York time, the biggest drop since April 2009. BSkyB fell 4.6 percent to 715.5 pence in London.

The Competition Commission, now overseeing the regulatory process for Murdoch’s 700 pence a share bid, will report in six months, followed by “intensive discussions,” Culture Secretary Jeremy Hunt told lawmakers in London today. Hunt sent the bid to the antitrust body after News Corp. withdrew earlier pledges aimed at avoiding a lengthy review, including the spinoff of BSkyB’s Sky News channel.

The U.K. government is seeking to avoid ruling on the deal in the wake of the public outcry after the escalating phone- hacking allegations involving members of the public, celebrities and sports figures.

“This has now become a completely politically driven issue,” Liberum Capital analyst Ian Whittaker said. “It will be hard for the government to approve the bid, either now or at some point in the future.”

Photographer: Jonathan Fickies/Bloomberg

Rupert Murdoch, chief executive officer of News Corp. Close

Rupert Murdoch, chief executive officer of News Corp.

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Photographer: Jonathan Fickies/Bloomberg

Rupert Murdoch, chief executive officer of News Corp.

Public Outcry

U.K. Deputy Prime Minister Nick Clegg asked Murdoch to “reconsider” his bid following allegations that Murdoch’s News of the World tabloid hacked into voicemails of terror and murder victims such as murdered schoolgirl Milly Dowler and paid police for stories. News Corp. published the last issue of the 168- year-old newspaper yesterday.

“Withdrawing the undertakings means that spinning off Sky News is not relevant anymore and any preexisting thoughts on the deal are scrapped,” Alex de Groote, an analyst at Panmure Gordon in London, said via telephone. “They approach it with a fresh sheet of paper.”

In a statement, News Corp. said it “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.”

News Corp., which also publishes the Sun, the Times and the Sunday Times, also said today that it will investigate whether its journalists broke the law to obtain the bank, medical and legal records of former Prime Minister Gordon Brown.

‘Blagging’ Allegations

The Guardian reported that both the Sunday Times and the Sun obtained files using techniques known as “blagging,” where people impersonate someone over the phone in order to access private information. The Sun obtained details of the private medical files of Brown’s son Fraser, while someone working for the Sunday Times acquired Brown’s legal records and tried to gain access to bank statements, the Guardian said.

“We note the allegations made today concerning the reporting of matters relating to Gordon Brown,” News Corp.’s News International unit said in an e-mailed statement. “So that we can investigate these matters further, we ask that all information concerning these allegations is provided to us.”

London police have made at least seven arrests as part of the phone-hacking investigation, including that of Andy Coulson, one-time editor of the News of the World and former communications chief for Prime Minister David Cameron. Coulson has denied any knowledge of reporters tapping phones when he led the paper.

Independent Inquiry

BSkyB already dropped 12 percent last week as the four- year-old phone-hacking scandal escalated, prompting Cameron to pledge an independent inquiry. The scandal has wiped almost 2.4 billion pounds off BSkyB’s market value since the Guardian reported the Milly Dowler allegations on July 4.

News Corp., which already owns 39 percent of BSkyB, wants full control to gain access to the broadcaster’s increasing cash flow. BSkyB may also help Murdoch make News Corp.’s newspapers more profitable by allowing him to bundle print and pay-TV subscriptions and spread content over media platforms.

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To contact the reporters on this story: Jonathan Browning in London at jbrowning9@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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