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UK political system targets News Corporation: end of Murdoch’s empire?

Full powers to Lord Justice Leveson to call media proprietors, editors and politicians

Rupert Murdoch's News Corporation has announced that it is dropping its planned bid to take full ownership of satellite broadcaster BSkyB. The announcement came as the House of Commons prepared to vote for a motion supported by all major party leaders calling on Mr Murdoch to do so.

The move follows a scandal over phone hacking by its UK newspaper group. News Corp chairman Chase Carey said the bid had become “too difficult to progress in this climate”.

The scandal has already led to the closure of the UK's biggest-selling newspaper, the News of the World.

“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,” said News Corp deputy chairman and President Chase Carey in a statement.

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

BSkyB's share price briefly dropped following the announcement to about 4% down for the day, before recovering. The company's share price has fallen some 20% since peaking a week ago, and is trading at a level not seen since News Corp first announced its bid plans in June last year.

A spokesman for British Prime Minister David Cameron welcomed the news: “As the prime minister has said, the business should focus on clearing up the mess and getting its own house in order.”

The Labour leader, Ed Miliband, called it “a victory for people up and down this country who have been appalled by the revelations of the phone hacking scandal and the failure of News International to take responsibility”.

Liberal Democrat deputy leader Simon Hughes said that “the sun is now setting on the Murdoch empire”.

The BBC's business editor Robert Peston said: “It's a huge humiliation. This was [News Corp's] biggest investment plan of the moment. It was one of the biggest investments they've ever wanted to make. It is an extraordinary reversal of corporate fortune... And questions will now be asked whether this is the full extent of the damage to the empire”.

News Corp already owns 39% of BSkyB, but may be compelled to give up even this minority stake if it is deemed not to be a “fit and proper person” by regulator Ofcom following the conclusion of current police investigations.

Robert Peston added there had been “a lot of speculation” that Mr Murdoch might now want to sell his UK newspapers, but the current state of the industry made them less attractive to potential buyers.

“The question is: who is going to pay him the price that they are worth? He will not want to sell those papers at a loss.”

PM Cameron has asked Lord Justice Leveson to oversee a public inquiry into the News of the World scandal and media regulation. In a statement to the Commons, he said the inquiry would begin as “quickly as possible” and would be in two parts - an investigation of wrongdoing in the press and the police, and a review of regulation in the press.

The judge will have powers to call media proprietors, editors and politicians to give evidence under oath, the PM said.

Mr Cameron said those who sanctioned wrongdoing should have no further role in running a media company in the UK.

He said Lord Justice Leveson, assisted by a panel of senior independent figures, would make recommendations for a better way of regulating the press which “supports their freedom, plurality and independence from government but which also demands the highest ethical and professional standards”.

He will also make recommendations about the future conduct of relations between politicians and the press.

Mr Cameron told MPs he would require all ministers and civil servants to record meetings with senior editors and media executives to help make the UK government “one of the most open in the world”.

Mr Miliband welcomed the proposal, arguing it must be imposed retrospectively, so that he and Mr Cameron publish all details of meetings with media executives dating back to the last general election.

The prime minister was previously criticised for meeting Rupert Murdoch, head of News Corporation, in Downing Street soon after the election, because Mr Murdoch did not walk through the front door.