News Corp pulls BSkyB bid as local arm probes expense accounts for unethical conduct

News Corp has caved in to public pressure by retracting its $12 billion bid to operate British commercial broadcast giant BSkyB as the impact of the recent News of the World phone-hacking scandal continues to engulf the media giant and drag down its share price.

The pulling of the bid comes after News Ltd Australian head John Hartigan yesterday announced that the local division would conduct a thorough review of editorial expenditure during the past three years “to confirm that payments to contributors and other third parties were for legitimate services”.

The announcement sparked speculation over whether any of the dubious activities seen in Britain could have spread to other areas of the News empire.

News Corporation deputy chairman and chief operating officer Chase Carey announced overnight that while the acquisition of BSkyB would benefit both companies “it is has become clear that it is too difficult to progress in this climate”.

“News Corporation remains a committed long-term shareholder in BSkyB. We are proud of the success it has achieved and our contribution to it,” he says.

The announcement is a clear bow to public pressure with the leaders of all British major political parties including Prime Minister David Cameron signalling their opposition to the takeover.

“This is the right decision,” Cameron said overnight.

The combination of parliamentary scrutiny, a police investigation, public outcry and renewed discussion over regulation of the media forced News International into a corner.

The potential closure of more UK publications is a looming threat and one analyst has downgraded News stock by 18%.

Shares in BSkyB rose nearly 2% after the announcement as shares in News continued to fall since last week’s closure of News of the World. News Australian shares dropped more than 10%.

But News may not have finished with BSkyB. In a statement the British television operator said it believes the deal is a “compelling” investment and investment analysts said News may return to the bid when the media furore over the hacking scandal dies down.

News has been looking to buy BSkyB for the past year, originally bidding in June 2010.

Australian News chief John Hartigan said the company would “be conducting a thorough review of all editorial expenditure over the past three years to confirm that payments to contributors and other third parties were for legitimate services”.

“I have absolutely no reason to suspect any wrongdoing at News Limited.

“However I believe it is essential that we can all have absolute confidence that ethical work practices are a fundamental requirement of employment at News Limited,” he says.

The company, which publishes newspapers in all Australian metropolitan markets as well as nationwide title The Australian, responded to accusations that it was involved in the phone-hacking scandal by saying the allegations were “erroneous”.

Hartigan said he believed it was important to deal with those perceptions “constructively”.

He said he had met with Julian Disney, head of the Press Council, and that he would  work with the council to “strengthen … ethical codes and guidelines”.