News Corp withdrew its $12 billion bid to buy out the 61 percent of broadcaster BSkyB it does not already own on Wednesday after the government turned on Rupert Murdoch following a phone hacking scandal.
The British parliament was due to pass a non-binding vote later in the day calling on Murdoch to drop his bid after allegations emerged that journalists at News Corp's UK newspaper arm had hacked into the phones of a murdered school girl and dead soldiers to generate stories.
BSkyB shares were down 1.2 percent after the news, after falling around 20 percent since July 4 when the hacking scandal at tabloid News of the World worsened, prompting the government to launch an inquiry into journalistic practices and phone hacking.
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 Chase Carey, Deputy Chairman, President and Chief Operating Officer, News Corporation.
News Corporation remains a committed long-term shareholder in BSkyB, he said, in reference to its 39 percent holding.
Analysts said they were not surprised.
I think with such universal political disapproval it would have been foolhardy to carry on at this stage, said Evolution analyst Steve Malcolm.
I think they need to get the phone hacking investigation and the judicial reviews completed, see what gets thrown out of that and regroup. If they are in position at the end of that to have another look at it then they are, but at the moment it would be a futile pursuit given the public and political objections and disapproval.
Ian Whittaker at Liberum said it was difficult for News Corp to continue with the bid following the savage attacks being dealt out in parliament.
Probably they also didn't want the spotlight on them, he told Reuters. There are worries about it spreading to the US.
News Corp made the bid for BSkyB last June and said the two companies would secure regulatory approval before negotiating the price. Murdoch's company had expected to get approval by now, but the bid was derailed after the hacking scandal exploded again last week.
(Reporting by Kate Holton; editing by Alex Smith)