Jeremy Hunt, the Culture Secretary, wrote to Ofcom, the media regulator, and the Office of Fair Trading yesterday morning to ask whether the failure of News International, News Corp’s British newspaper arm, to properly manage the News of the World could mean the takeover should be blocked. 
 
 Hours later, News Corp withdrew its proposal to spin off Sky News as a financially and editorially independent unit, which would have got the merger cleared by regulators, effectively forcing Mr Hunt to refer the bid to the Competition Commission. 
 
 This will result in a lengthy inquiry that analysts believe could last up to a year. 
 
 Observers believe News Corp is hoping that outrage at the phone hacking scandal will dwindle over this time, and regulators will be left to focus only on whether the takeover would damage media competition. 
 
 BSkyB’s share price, which had already plummeted last week, fell 7.3 per cent to below £7 in early trading, putting it at the level it was before News Corp’s proposed bid and wiping more than £877 million off the broadcaster’s value. The price rose again after News Corp’s announcement to Mr Hunt, but shares closed 4.6 per cent down at 715.5p. 
 
 News Corp took a bigger battering, amid escalating concerns about the company’s reputation and as allegations were made about phone hacking at other News International titles. Its share price fell 7.16 per cent to $15.55 during afternoon trading in New York, where it is listed. 
 
 Mr Murdoch’s hopes to merge News Corp with BSkyB looked increasingly distant last week. Ofcom emerged as a serious threat to the deal when it broke with its usual code of holding its counsel and reminded BSkyB that it could withdraw its broadcasting licence at any time, if it did not judge its key shareholders or directors to be “fit and proper”. 
 
 Ed Richards, Ofcom’s chief executive, followed the statement with a letter to John Whittingdale, chairman of the Commons select committee for culture, media and sport, explaining that the “fit and proper” test could look at any evidence it judged relevant, not just criminal convictions. However, the regulator is likely to take a back seat now that the Competition Commission is in charge of the investigation. 
 
 News Corp, which owns 39 per cent of BSkyB, reiterated its belief that the deal should be assessed on the matter of media plurality, not political issues. “News Corp continues to believe that, taking into account the only relevant legal test, its proposed acquisition will not lead to there being insufficient plurality in news provision in the UK,” it said. ||||| News Corporation has increased its offer to take full control of BSkyB, which has again been rebuffed by the broadcaster, but the two companies have agreed to hold talks to find a mutually agreeable price and tackle regulatory issues. 
 
 It emerged last night that Rupert Murdoch's News Corporation had made a bid of 675p per share in cash to take control of the 61% in BSkyB the company does not already own. The offer was rejected by BSkyB's independent directors as undervaluing the company. 
 
 News Corporation has raised its proposal to 700p per share in cash, which values the 61% stake at £7.8bn ($11.5bn), which prompted BSkyB's independent directors to call for talks "with the objective of achieving an agreed proposal for the mutual benefit of all shareholders". 
 
 However, BSkyB said that the new proposal still "significantly undervalued" the company and that regulatory and pre-financing conditions added "considerable uncertainty to when and whether any formal offer could be made". 
 
 BSkyB said it would accept a proposal from News Corporation if it "would deliver in excess of 800p per share". 
 
 "News Corp and the BSkyB independent directors have been unable to reach a mutually agreeable price at the current time," said News Corporation in a statement. "However, both parties have agreed to work together to proceed with the regulatory process in order to facilitate a proposed transaction and, accordingly, we have agreed to enter into a cooperation agreement". 
 
 News Corporation said that it intended to fund the deal with a "significant portion" of its cash reserves, which were $8.2bn at the end of March, and that taking full control would reduce the company's reliance on advertising and boost its global footprint. 
 
 "Our increased proposal represents both an attractive valuation," said the News Corp deputy chairman, Chase Carey. "We believe that this is the right time for BSkyB to become a wholly-owned part of News Corporation with its greater scale and broader geographic reach. News Corporation will also benefit from increasing the geographic diversification of our earnings base, reducing our exposure to cyclical advertising revenues and increasing our direct consumer subscription revenues." 
 
 News Corporation said that a "preliminary assessment" indicated that there were regulatory hurdles to the existing deal and that filings would be made as soon as possible. 
 
 BSkyB said that it was putting together a committee of independent directors and executive directors "with authority to exercise all powers of the board in relation to the possible offer and any matters relevant to the proposal". 
 
 "Based on careful review and advice, it is the unanimous view of the independent directors that there is a significant gap between the proposal from News Corporation and the value of the company," said Nicholas Ferguson, senior independent non-executive director at BSkyB. 
 
 BskyB is being advised by Morgan Stanley and UBS. Deutsche Bank and JP Morgan Cazenove are acting as financial advisers to News Corp. 
 
 BskyB's share price rose 21%, up by 126p to 726.5p, in early trading. 
 
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– News Corp is in hot pursuit of British Sky Broadcasting, offering it $11.5 billion for the 61% of the British pay channel it doesn’t already own, according to the company’s own Wall Street Journal. That 700 pence-per-share offer was an improvement on the 675 pence-per-share reported last night, according to the Guardian, but Sky rejected it, saying it wouldn’t accept less than 800 pence-per-share. The two sides have, however, agreed to work together to acquire regulatory approval, and reach a mutually-agreeable price. Rupert Murdoch's son, James, is Sky's non-executive chairman, but won't participate in the talks. “I wouldn’t think News Corp. would enter into this if they didn’t think they were going to get BSkyB,” one analyst told Bloomberg. Sky’s price shot up 19% to 715 pence on the news, its biggest jump in 10 years.