(Adds analysts' comments, background)
By Kate Holton
LONDON, July 11 Britain asked on Monday for
fresh regulatory advice over the bid by Rupert Murdoch's News
Corp to buy BSkyB , signalling it could be
looking for a way out of approving the deal while a phone
hacking scandal rages.
Shares in the British satellite firm slumped over 7 percent
on Monday, after a similar fall on Friday, as politicians added
to the pressure by demanding the government delay the bid and
send it for a longer investigation at the Competition
"We believe the deal is all but dead," Panmure Gordon
analyst Alex DeGroote said.
"On Friday we cut our probability of the deal going ahead to
50:50 ('evens') from 90:10 in favour. This seems very optimistic
now. Our new assessment is 10:90 in favour."
News Corp had secured initial government backing for the bid
by promising to spin off BSkyB's influential Sky News channel in
response to claims the deal would give Rupert Murdoch too much
influence over public opinion.
News Corp would however have retained a 39 percent holding
in the new company and provided much of its revenue through a
deal to carry the channel on the BSkyB platform, prompting
critics to question how much editorial independence the channel
would really have.
The request for further information from regulators means
the government may now have room to refer the deal to the
Competition Commission for a full investigation which could last
up to a year, taking pressure off Prime Minister David Cameron
who is himself under fire for his close ties to Murdoch.
"We think there is a very strong chance the News Corp bid
for BSkyB gets completely scrapped," Liberum analyst Ian
Whittaker said in a note.
"While the government has emphasised that the due regulatory
process has to be followed and there has been commentary News
Corp would head to the courts if its bid was blocked, this has
now become a completely politically-driven issue.
"It will be hard for the government to approve the bid,
either now or at some point in the future."
The Department of Culture, Media and Sport is to write to
Ofcom and the Office of Fair Trading on Monday to ask whether
the original submissions around the deal should change following
the phone hacking scandal that has damaged the reputation of the
The letter is expected to ask if the undertakings given by
News Corp over Sky News are still acceptable in light of the
hacking scandal, which resulted in Murdoch closing the tabloid
at the centre of the problem.
It will also ask if that closure affects media plurality, or
the number of media voices, in Britain, and to inform the
government of any opinion it takes on whether News Corp is a
'fit and proper' holder of a broadcast licence.
Several analysts said they still expected a deal to go
through eventually, while others said it was now too hard to
call as the deal is overtaken by political events.
Citi analyst Thomas Singlehurst said a potential BSkyB/News
Corp merger no longer looked as certain as thought a week ago.
"At the same time, the actions taken to date by News Corp
suggest that its ambition to own 100 percent of BSkyB is
undimmed," he said. "Barring the most dramatic of outcomes from
the criminal investigations, we still see it as a matter of
'when' not 'if'."
Analyst Claudio Aspesi at Bernstein said the chance of the
deal going through was now less than 50 percent, although he
said a deal could be resumed at a later date if they could prove
the problem was confined to the newspaper arm of the company.
"What I worry about is that questions will now shift to
"What did James (Murdoch) and Rupert know, and when did they
know it?"," he told Reuters.
"Unless this is cleared very soon, the deal will fall
through, because the government will be under pressure to
distance itself from the Murdoch family."
BSkyB shares were trading between 550 and 600 pence before
News Corp made its initial approach in June last year. They then
spiked over 700 pence as the two sides revealed that News Corp
had offered 700 pence and BSkyB independent directors were
insisting on an offer of over 800 pence.
On Monday they were trading down 7.3 percent to 695 pence.
Chief Secretary to the Treasury Danny Alexander said the
Department of Culture, Media and Sport was writing to the
regulators because it needed the most up to date information as
it made its final decision on the deal.
"It is right in the light of ... all the developing issues
(that) Ofcom have the opportunity to come forward with fresh
advice," he told Sky News.
(Reporting by Kate Holton; Editing by Jon Boyle)