Rupert Murdoch's News Corp. Withdraws BSkyB Bid Amid Phone Hacking Scandal

6:29 AM PDT 7/13/2011 by Mimi Turner, Georg Szalai

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The conglomerate, which owns a 39% stake, plans to remain a long-term shareholder of the U.K. pay TV company.

LONDON - After a week of turmoil and unprecedented criticism of his closest executives, Rupert Murdoch’s News Corporation has withdrawn its $12 billion bid for BSkyB, sending shares in the British pay-TV powerhouse plunging within moments of the news announced on Sky News.

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However, the global media power is still free to return to a bid for BSkyB after a period of six months, potentially resuming its original plan when the furor around admissions of widespread criminal behavior at News of the World, which was shuttered Sunday, has died down.

In a statement from News Corp., COO Chase Carey says the decision was forced by the barrage of criticism and the huge political firestorm triggered by the phone hacking revelations tainting News International and the wider News Corp brand.

"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," Carey, the former CEO of DirecTV who has been a key player behind the bid, says in a statement.

"News Corporation remains a committed long-term shareholder in BSkyB. We are proud of the success it has achieved and out contribution to it," he adds.

The humiliating about-turn comes as News Corp said as recently Tuesday that it was prepared to cooperate with the Competition Commission on a new lengthy regulatory process to secure the deal that has been News Corp’s strategic focus for almost 18 months.

BSkyB would have been the biggest and most profitable division within News Corp and was central to its strategic and growth plans in the future. It was also the key deal that would have allowed James Murdoch to realize his succession ambitions, potentially replacing Rupert Murdoch at the helm of the global media power.

However, with billions wiped off its own share price in the wake of the deepening crisis over the behavior of its most senior executives, News Corporation has now opted to shore up its own position, first with the $5 billion share-buy back intended to stabilize its own position, and by abandoning – at least temporarily – the increasingly unpopular deal.

As of 10am ET, News Corp.’s stock was up 2.1 percent at $15.67.