Britain was looking for a way out of approving media baron Rupert Murdoch's multi billion dollar deal to buy broadcaster BSkyB amid a phone hacking scandal that has damaged the Prime Minister and raised broader questions about politicians' relations with the media.
Deputy Prime Minister Nick Clegg, from the junior coalition partner the Liberal Democrats, urged Murdoch to reconsider the bid after revelations one of his newspapers hacked into the phones of murder victims and relatives of Britain's war dead.
New allegations on Monday included reports it had bought contact details for the British royal family from a policeman and tried to buy private phone records of victims of the Sept. 11, 2001, attacks on the United States.
"Do the decent thing, and reconsider, think again about your bid for BSkyB," Clegg told BBC News after meeting relatives of one of the victims of phone hacking, a murdered schoolgirl.
The government, which faces a stormy parliamentary debate on Wednesday, earlier asked media regulator Ofcom and the consumer watchdog to reassess the bid in the light of the scandal, a move that could provide a basis to block the buyout. The new request to Ofcom, which is already assessing whether News Corp is a 'fit and proper' holder of a broadcast licence, and the Office of Fair Trading follows a report in the Independent newspaper that government lawyers were drawing up plans to block the BSkyB bid.
Shares in BSkyB dropped more than 7 % on Monday morning after a similar fall on Friday. News Corp shares fell more than 7 % in New York last week. "We believe the deal is all but dead," Panmure Gordon analyst Alex DeGroote said. The head of UK equities at one top 30 investor in BSkyB told Reuters they expected the deal to be delayed.
"I believe the takeover will happen in due course but it is unlikely to go through until next year at the earliest," the investor said. Murdoch flew to London on Sunday from the U.S. to try to contain the damage to his media empire, which wields influence from Hollywood to Hong Kong and includes US cable network Fox and the Wall Street Journal as well as Britain's biggest selling paper, the Sun.
He has shown no sign of backing away from the BSkyB deal, which would be his company's largest acquisition.
Sources close to his company said he could consider other options to get it through if he felt the government was going to block or delay it, but they did not elaborate.
Eight people, almost all journalists, have been arrested so far in a police inquiry into the allegations, which include that police may have been paid for information and a company executive may have destroyed evidence. News Corp's British media arm firmly denies any obstruction of justice.
"You wouldn't be human if you weren't totally appalled by the revelations that have come to light, they're just stomach churning and I think everyone feels totally shaken," culture secretary Jeremy Hunt said in a television interview. Hunt's strong comments, and the approach to the regulators, may have been designed to give the government some political cover ahead of Wednesday's debate, lawyers said, as from a legal standpoint the takeover deal and hacking scandal are not linked.
Both Hunt and Prime Minister David Cameron, from the centre-right Conservatives who lead the coalition government, have been accused by left-leaning Labour of being too close to Murdoch and too slow to act to uncover the full extent of the scandal.
Andy Coulson, a former editor of the News of the World, was until earlier this year Cameron's spokesman, before he was forced to resign over the scandal. Labour party leader Ed Miliband said on Sunday he would force parliament to vote this week if Cameron did not take steps to halt News Corp's $14-billion bid for the 61 % of BSkyB that it does not already own.
He said on Monday the government had moved reluctantly.
"They are doing it not because they want to, but because they have been forced to," Miliband said, urging Murdoch to "drop the bid for BSkyB". A vote in parliament could split the coalition between Cameron's Conservatives and the Liberal Democrats who, traditionally less favoured by Murdoch's media, have signalled they could vote with Labour on the issue.
It would also give Labour a chance to cast itself as the champion of a public angered by allegations that News of the World reporters and editors were complicit in breaking into voicemails including those of bombing victims for stories.
"We are working on a plan to suspend the deal while the police investigation is taking place," the Independent quoted a senior government source as saying. A spokesman for the prime minister declined to comment. Hunt's letter to the regulator asked them to consider whether News Corp's undertakings which were made to secure the deal were still credible given the revelations.
"Given the well-publicised matters involving the News of the World in the past week...I would be grateful if you could let me know whether you consider that any new information that has come to light causes you to reconsider any part of your previous advice to me including your confidence in the credibility, sustainability of practicalities of the undertakings offered by News Corporation," the letter said.
Murdoch's own Sunday Times reported that a 2007 internal investigation at the News of the World had found evidence that phone hacking was more widespread than the company had admitted and that staff had illegally paid police for information.
As Murdoch, 80, was driven into his London headquarters on Sunday, he held up the final edition of the News of the World, the 168-year-old newspaper he bought in 1969 then closed last week in a bid to stem the crisis.
Christina Camargo-Lima, walking on her way to work past Murdoch's London flat on Monday morning, welcomed the criticism of Murdoch. "I think it's time the mogul came down. They just can't control democracy like that."
The News of the World is best known for its lurid headlines exposing misadventures of the rich, royal and famous. Its last headline said simply "Thank You & Goodbye" over a montage of some of its most celebrated splashes of the past 168 years.
On Monday, the BBC said News International had bought phone details for the royal family from a security officer, citing company emails. "The implication, therefore, is that the security of the head of state was in some sense being threatened," said BBC business editor Robert Peston.
The Daily Mirror newspaper reported, citing an unidentified source, that News of the World journalists had offered to pay a New York police officer to retrieve the private phone records of victims of the Sept. 11, 2001, attacks.
There was no immediate comment from the company. Murdoch dined on Sunday in an upmarket hotel with his British newspaper arm's chief executive Rebekah Brooks, a friend of Cameron's and editor of the News of the World at the time of the alleged phone-hacking, and his son and heir apparent, James.
Cameron has since said Brooks should step down.
The affair has thrown a harsh spotlight on the long-standing ties between British politicians and Australian-born Murdoch. Cameron has insisted that the government has no legal power to block the BSkyB deal if it is satisfied that enough media plurality -- competition -- will be maintained.
It had already indicated it would accept News Corp's assurances on this count.