The UK government has referred Rupert Murdoch-owned News Corp's bid for British Sky Broadcasting to competition authorities for review, a day after the company's UK arm shut down its Sunday paper News of the World amid a phone-hacking scandal.
The announcement on Monday by Jeremy Hunt, the UK's cultural secretary, means that the $11.9bn bid will probably be put on hold for several months.
The decision follows News Corp's withdrawal of a promise to spin off Sky News, which had been a condition for assuming complete ownership of the prominent UK broadcaster, in which it already has 39 per cent stake.
Britain's Competition Commission must now hold a full-scale inquiry into whether the takeover would break anti-monopoly laws.
Analysts say the deal could be jeopardised if British regulators impose tougher rules in response to new concerns about News Corp's dominance in British media.
But the company defended the bid, saying: "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."
A failure to clinch the BSkyB takeover would represent a huge setback for Murdoch, who has built up a global media empire over four decades.
News Corp owns a number of newspapers and media outlets around the world, as well as Fox News and the 20th Century Fox film studio.
Pressure to bear
The referral of the bid for review came as the UK government was facing intense pressure to block it after the News of the World phone-hacking scandal reached a tipping point earlier this week.
The paper published its final edition on Sunday.
Controversy stemmed from allegations that in 2002 the paper had listened to the voicemail of Milly Dowler, a missing schoolgirl who was later found murdered, and even deleted some of her messages to make way for more.
That claim, and allegations that a growing list of victims included Britain's war dead and the families of those killed in the 2005 London transport bombings, outraged readers and caused many brands to pull advertising from the title.
Louise Cooper, a financial analyst at BGC Partners in London, said the revelations of phone-hacking at News of the World title had sent the BSkyB share price tumbling from $13.5 per share a week ago to $11.14 on Monday.
"What that tells us is that the City no longer expects the takeover to go through - or is at least highly sceptical that it will go through, and that it definitely won't go through in the foreseeable future," she said.
Alan Rusbridger, editor of The Guardian newspaper and the first to report on the hacking scandal two years ago, said News Corp's takeover bid was dead in the water.
"I think the prospects of the BSkyB bid going ahead are now nil," he said. "I think the government realises it would be politically impossible."
The scandal continues to spread beyond the UK tabloid as new allegations have been made against two more of Murdoch's British newspapers to have engaged in hacking into personal information of Gordon Brown, the former British prime minister, and even the royal family.
Brown may have been targeted by an investigator working for the now-defunct News of the World, the police said on Monday.
The Guardian and Independent newspapers reported earlier on Monday that News International reporters had tried to hack into Brown's voicemails during his tenure as finance minister and prime minister.
The reporters repeatedly tried to obtain information from Brown's bank account, his legal files and his family's medical records, The Guardian reported.
Various UK media outlets also reported on Monday that royal protection officers were bribed to provide personal details about the royals, including Queen Elizabeth and her aides, to News of the World.
Reports said detectives had approached Prince Charles and his wife Camilla to say they had found evidence which indicated their voicemails might have been hacked.
Prince Charles's spokesman declined to comment on an ongoing police investigation.
The Metropolitan Police said it was "extremely concerned and disappointed" about the "continuous release of selected information" which it said could hamper its corruption investigation.