Shares in BSkyB plunged on Friday as culture secretary Jeremy Hunt warned it would take "some time" to reach a decision on whether to allow Rupert Murdoch to take full control of the satellite broadcaster and added he would be taking advice from Ofcom and the Office of Fair Trading.
A day after Murdoch sought to draw a line under the phone hacking scandal by announcing the closure of News of the World - while keeping its previous editor Rebekah Brooks in her current position as chief executive of News International - David Cameron added to the growing number of calls for Brooks's resignation, suggesting the saga still has a long way to run.
If Brooks had offered her resignation "I would have taken it," Cameron said, adding that "the police must feel they can go where they need ... and question everyone to get to the bottom of this."
Shares in BSkyB crashed 47p, or 5.8%, to 765p on Friday morning, taking their total decline this week to 10%, a drop that has wiped about £1.4bn off the value of the business.
The owners of rival publications such as the Sunday Mirror and the Mail on Sunday saw their stock jump, as analysts predicted they would gain readers and advertisers left behind by the demise of News of the World. Shares in Trinity Mirror, owner of the Sunday Mirror and the People newspapers, soared by more than 10% to 53.35p, while stock in the Daily Mail & General Trust increased by as much as 3% to 492p.
Alex DeGroote, an analyst at Panmure Gordon, said: "The opportunity for Trinity Mirror is much improved market share of circulation and advertising. In terms of demographic, the Mirror titles are arguably much closer to the News of the World, and there is conceivably 2.6m circulation up for grabs."
News Corporation, where Murdoch is chairman, wants to acquire the 61% stake in BSkyB it does not already own. Analysts say the move will eventually yield far more profit than the money that the media mogul had been making from the News of the World.
DeGroote said: "The probability of a successful deal is now much reduced. Previously, we would have estimated a 90%-plus chance of a deal getting approval, and completing in the near term. Now the probability can be no more than 50%, and the time-line is likely to be drawn out."
The threat to the BSkyB deal has rattled BSkyB shareholders, who fear the government or regulator might now kick the proposed transaction into the long grass.
Their fears intensified on Thursday when Hunt said he would take "several weeks" to review the 100,000-plus submissions he has received on the deal – meaning that any further decision on the £8bn Murdoch merger is unlikely to be made until September.
In a statement this morning, a spokesman for Hunt said: "The Secretary of State has always been clear that he will take
as long as is needed to reach a decision. [He] will consider carefully all the responses submitted and take advice from Ofcom and the Office of Fair Trading before reaching his decision.
"Given the volume of responses, we anticipate that this will take some time. He will consider all relevant factors including whether the announcement regarding the News of the World's closure has any impact on the question of media plurality."
Sacrifice
Louise Cooper, market analyst at BGC Partners, said: "By sacrificing the News of the World (rather than the other redhead Rebekah Brooks) Rupert Murdoch has shown us how keen he is to own BSkyB. Although quite clearly the future of a global media empire is not in newspapers (the 22-year-old sitting next to me gets his news online as do all his mates), it must have been a painful decision to close down the most successful British Sunday paper. The financial impact of closure on News Corp is minimal. Not though for it's competitors – Trinity Mirror shares up 10% today to be up 26% this week and Daily Mail and General Trust up 3% today and up 10% off recent lows, on hopes their circulation and advertising revenue will be boosted by the competitor's closure."
The biggest concern for shareholders was a statement from Ed Richards of the regulator Ofcom, which said its "fit and proper test" to ensure that media groups adhere to high standards of behaviour, was "an ongoing duty ... that is not linked to any particular event, merger or transaction. It's a generalised duty." However, he made it clear that there was no question of intervention until police investigations were completed.
BSkyB's shares were worth just 600p before Murdoch launched his bid to take full control of the company in June 2010, and City traders believe that the share price will remain above 800p unless the takeover is blocked. A lengthy delay, though, will hit asset management firms and hedge funds who have bought shares in BSkyB over the last year in the expectation of guaranteed profits this summer.
"Many hedgies and arbitrageurs are bailing out because they don't want to tie up funds when there is uncertainty linked to their investment," said one trader.
Before the crisis broke, some BSkyB investors were pushing News Corp to raise its bid from 700p, with analysts saying Murdoch will have to pay a minimum of 850p and possibly up to 950p.
Richard Greenfield, an analyst at the US broker BTIG, said: "American investors are frustrated because the latest developments indicate further delays and uncertainty."
Greenfield said Wall Street was betting News Corporation's acquisition of BSkyB would happen and that if the News of the World scandal prompted Murdoch to review his investment in the newspaper industry, "all well and good".
A 'sunset industry'
He added that Murdoch's other media interests in cable television – Fox News and his numerous other operations – are far more valuable in the eyes of investors than his newspapers. He said: "Many of us believe newspapers are a sunset industry and wouldn't give a damn if Murdoch decided to get rid of them."
Analysts at the investment bank Nomura suggested the UK newspaper business could be more trouble than it was worth for Murdoch: "Perhaps ironic is the fact that the least-valued division of the corporation by investors is creating the most negative headlines."
In a question in the House of Lords, shadow leader of the house, Lady Royall, called for a delay "in the light of the loss of public and commercial confidence in News International", the News of the World's parent company.
BSkyB shares can be found in virtually all UK pension funds, which has sparked campaigners to call for action in the City.
Louise Rouse, director of engagement at FairPensions, a charity that promotes responsible investment by fund managers, said: "Pension investors should seriously consider whether the takeover of BSkyB by News Corp is in the long-term interests of their beneficiaries. We believe these interests extend beyond the price paid for BSkyB shares to include broader social issues like media plurality in this country."
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