Summary:

Another major setback for News Corp in the UK today: Jeremy Hunt, the culture secretary, is sending back the media giant’s bid for broadcast…

News Corp. (NWS)
photo: Triborough

Another major setback for News Corp in the UK today: Jeremy Hunt, the culture secretary, is sending back the media giant’s bid for broadcaster BSkyB (NYSE: BSY) to both the broadcast regulator Ofcom and the Office of Fair Trading. The next step? A possible referral to the Competition Commission, giving the deal a unprecedented level of scrutiny that may scupper it altogether. The news sent BSkyB shares down to below the News Corp (NSDQ: NWS). bid of 700p at one point.

In Hunt’s letter (PDF here), he gives Ofcom a wide berth to lay out any of the concerns it might have with News Corp’s bid to buy the 61 percent of BSkyB that it does not already own. This is a deal that Ofcom had originally given its seal of approval — way before any of last week’s revelations came to light. Here are the three areas Hunt has flagged to Ed Richards, the chief executive of Ofcom:

– How the closure of the News of the World last week — “and/or the events surrounding it” — affects Ofcom’s opinion of the merger;
— Whether there have been any developments related to the letter Ofcom sent last Friday to the house select committe and MP John Whittingdale about NWS’s status as a “fit and proper” owner of BSkyB;
— And, just in case Richards did not get the point with the first two questions, whether there is anything else that Ofcom feels has emerged in the past week has led it to reconsider its original “confidence” (Hunt’s word) in News Corp.

Meanwhile, the OFT letter, which paidContent understands has yet to be sent (we will update this story with the link when it’s available) (link here) also raises similar questions around the OFT’s previous guidance, and how/if it has been affected by the events of the last week, in which we have seen the closure of the major daily newspaper News of the World, and ongoing investigations into criminal activity by those working for News Corp’s UK publishing arm, News International.

In June, the OFT conditionally approved the full acquisition of BSkyB by News Corp, pending a spin off of the news channel Sky News.

The two letters are undoubtedly a setback for News Corp, as they demonstrate an increasing level of skepticism among public sector decision makers, even without a full completion of the investigation.

Shares in the broadcaster, which owns pay-TV and broadcast satellite services, broadband and television channels, dropped below the level of the News Corp. bid but are currently trading just above. More from Guardian. At this writing, the stock is down 4.6 percent.

The news comes as Labour leaders look for cross-party support in the House of Commons to quash the deal. They received some today from Deputy Prime Minister Nick Clegg, a Liberal Democrat, who joined the call for News Corp. to drop the bid.

The specter of scandal over the whole issue spreads across the Atlantic to Les Hinton, now heading up Dow Jones but who had been executive chairman of News International at the time of some of the alleged activities. News Corp could take a big hit when U.S. markets open.

We have contacted News Corp for its response to the news and will update accordingly.

More as warranted.

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