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Political Pressure Kills News Corp.'s BSkyB Takeover Effort

Rupert Murdochs News Corp. (NASDAQ:NWSA) abandoned on Wednesday its effort to acquire the remainder of British satellite TV provider BSkyB it doesnt already own amid a tabloid hacking scandal that has erupted a political firestorm in the U.K.

The decision came as Britains parliament raced to demand Murdoch, News Corp.s CEO, drop his $12 billion effort to buy the remaining 61% of BSkyB.

We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies but it has become clear that it is too difficult to progress in this climate, Chase Carey, News Corp.s president and chief operating officer, said in a statement.

News Corp. will remain a shareholder of the British satellite TV provider and is eligible to make another takeover effort in six months.

News Corp. is the parent company of FOX Business and a number of other media entities, including FOX News, The Wall Street Journal and the New York Post. 

The scandal erupted last week amid allegations News Corp.'s U.K. tabloid the News of the World had hacked into the voicemails of murder and terrorism victims. Reporters and other News Corp. U.K. publications also allegedly hacked the medical records of former Prime Minister Gordon Brown and other politicians and celebrities.

While Murdoch has condemned the alleged hacking of a dead teenager's phone by reporters of the News of the World, the company has denied breaking the law in reporting on personal details of Brown.

Shareholders took the news in stride, bidding News Corp.'s stock 1.56% higher to $15.59 Wednesday morning.

Faced with political pressure, earlier this week News Corp. paved the way for the deal to be reviewed by the independent Competition Commission. The company also announced plans to close the News of the World. However, those actions failed to quell the political firestorm in the U.K.

News Corp. wasnt worried a collapse of the BSkyB deal would have a big financial impact because it already controls the company and the transaction was seen as the best use of its cash, The Wall Street Journal reported Tuesday night.

That sentiment was backed by Citigroup, which added News Corp. to its Top Picks on Wednesday and said the stock is too compelling to ignore, MarketWatch reported.

In the report, Citi analysts said they see few (if any) scenarios that would result in permanent damage of News Corp.s exiting assets&Investors should be indifferent whether BSkyB closes or not. Either scenario would represent significant upside from current levels.

Its possible News Corp. could announce a further shakeup in the wake of the hacking scandal. In recent weeks the company has informally sought potential suitors for News International, its U.K. newspaper business, the Journal reported. The business includes the shuttered News of the World, the Sun, the Times of London and Sunday Times.

While there didnt appear to be any buyers due to the economics of the newspaper industry, its possible News Corp. could revisit selling or spinning off News International in the next six months, the Journal reported.