Rupert Murdoch's News Corp has dropped a bid to gain full control of BSkyB after the House of Commons demanded the offer be scrapped because of the phone hacking scandal.
The Australian-born billionaire's US-based News Corp, thwarted in a key move to expand its media empire in television, said it would keep its 39 per cent of the highly profitable pay-TV network, but left investors guessing over whether it might try again to buy up the rest, or even sell up.
The withdrawal removes the most pressing political conflict the company faced. But a police investigation and new public inquiries into the scandal and into media regulation as a whole may keep an unflattering spotlight on it and weaken the influence the 80-year-old media magnate has enjoyed in Britain for decades.
While there was no clear legal obstacle to letting the bid proceed via a regulatory review, having won informal government blessing some time ago, even Mr Murdoch's dramatic closure of the scandal-hit News of the World tabloid had failed to stem public anger, leaving the $12-billion buyout politically untenable.
Prime minister David Cameron, under fire over his own ties to former News of the World journalists, threw his government's weight behind an opposition motion today that denounced Mr Murdoch's bid to extend his media power while police were investigating whether his journalists hacked into the voicemails of thousands of people in search of stories.
Shares in News Corp, also owner of Fox television and the Wall Street Journal in the United States, had shed 15 perc ent in a week on fears of widening damage to its brands and a loss of opportunity in television. They regained up to 7 per cent in New York as investors welcomed relief from poisonous publicity.
BSkyB shares ended up 2 per cent in London.
Shareholders had been concerned by talk from politicians in the United States and Australia about mounting investigations. In Washington, two senators said today that the Justice Department and securities regulator should investigate whether News Corp broke laws in the United States over phone hacking.
There have been reports that families of victims of the September 11th attacks may have been targets of would-be phone hackers.
For a week, Britain has been in uproar since a major turn in the long-running saga of phone-hacking by the News of the World. Rival newspapers published allegations that, far from being limited to spying on the rich or powerful, the practice extended to victims of crimes, including child murders and the 2005 London bombings, as well as to parents of Britain's war dead.
Mr Cameron has been embarrassed by the arrest of his former spokesman - a former News of the World editor - and has had little choice but to follow the popular mood against Murdoch and
News International, News Corp's powerful British newspaper arm which also owns the best-selling Sun tabloid and London's Times.
"This is the right decision," Mr Cameron said of the withdrawal of the BSkyB bid. "This company clearly needs to sort out the problems there are at News International, at the News of the World. That must be the priority, not takeovers."
Labour leader Ed Miliband has, despite his party's own long courting of Mr Murdoch, emerged with his hitherto modest standing somewhat burnished by his stand on the bid. He said: "This is a victory for people up and down this country who have been appalled by the revelations of the phone hacking scandal.
"People thought it was beyond belief that Mr Murdoch could continue with his takeover after these revelations ... Nobody should exercise power in this country without responsibility."
The show of cross-party unity against Mr Murdoch in parliament was short-lived, with both Mr Cameron and his Labour predecessor Gordon Brown having to defend their contacts with the press baron against rumbustious questioning from the opposing benches.
Mr Cameron said there had been mistakes all round, leading to a "firestorm" engulfing parts of the media, police and the political system. Mr Brown has spoken out with emotion of having his baby son's illness revealed by a Murdoch tabloid.
The four-sentence statement from News Corp left the door open to a new offer to buy out other BSkyB shareholders at some point.
Several former employees of News International have been arrested this year after police reopened inquiries which they had dropped in 2007 following the jailing of the News of the World's royal correspondent and a private investigator.
Those under suspicion of phone hacking and of bribing police include former editor Andy Coulson, whom Mr Cameron hired as his spokesman in 2007 after the hacking scandal first broke. Mr Coulson left the prime minister's office in January and, like other News of the World staff, denies knowing of any wrongdoing.
In the most senior departure from the organisation since Mr Coulson, the legal manager of News International, Tom Crone, has left the company, a source familiar with the matter said. He has been closely involved in the company's defence.
That for years consisted of blaming one "rogue reporter" but has shifted to accept possibly wider problems.
Mr Murdoch flew in from the United States at the weekend to take command, alongside his son and heir apparent James and Rebekah Brooks, the News International chief executive. She was Coulson's predecessor at the News of the World at a time when some of the gravest alleged misdeeds took place.
Giving details to parliament of a formal public inquiry into the affair, to be chaired by a senior judge, Brian Leveson, Mr Cameron said that senior executives, however high in the Murdoch organisation, should be barred for life from the British media if found to have taken part in any wrongdoing.
Rupert and James Murdoch and Ms Brooks have been summoned to answer questions by a parliamentary committee next week. As US citizens, the Murdochs need not attend.
Former premier Mr Brown raised pressure on Ms Brooks by telling parliament that, in 2002, she had been told by police about "serious malpractice" by News of the World journalists and by investigators.