There was mounting concern in the City on Friday as it emerged Rupert Murdoch's plan to take full control of BSkyB could be blocked because his company, News Corporation, may not be viewed as a "fit and proper" owner.
The prospect of intervention from the regulator Ofcom prompted a huge sell-off of shares in the satellite broadcaster. They were down nearly 12% on the week, wiping £1.8bn off the company's value.
Ofcom has written to the authorities, asking to be "kept abreast" of information that could be of help to its chief executive, Ed Richards, following allegations of illegal activities at the News of the World.
Nervous US hedge-fund investors jammed the switchboards of London lawyers, demanding to know the scale of the regulatory threat. By late afternoon, shareholders were dumping the stock and the share price began to fall, down more than 7 percentage points to close at 750p.
Before the latest phone-hacking allegations at the News of the World on Monday, the shares were up at 850p on the assumption that News Corp's bid would be cleared by the culture secretary, Jeremy Hunt. Now there are worries the hacking scandal could implicate senior executives within Murdoch's media empire, raising questions about whether BSkyB's current licence is in good hands.
Jane Coffey, head of equities at Royal London Asset Management, said that in a worst-case scenario, News Corp could be forced to sell its 39% stake in BSkyB. "Although this seems unlikely, it's a possibility," she said, "This certainly isn't a good time to be buying into BSkyB."
In a letter to John Whittingdale, chairman of the Commons culture, media and sport committee, Richards said Ofcom has a duty under the Broadcasting Act "to be satisfied that any person (which will include controlling directors and shareholders) holding a broadcasting licence remains fit and proper to hold those licences".
Richards adds: "Ofcom will consider any relevant conduct of those who manage and control such a licence."
He said that Ofcom would not do anything to prejudice investigations by the police. However, "we are writing to the relevant authorities to highlight our duties in relation to 'fit and proper' and would like to know of any further information which may assist us in the discharge of our own duties".
Peter McInerney, head of the TV practice at media law firm Sheridans, said that if James Murdoch, chairman of News International (NI), which owns the News of the World, was asked to give evidence to the police, "that could hardly be construed as meaning News Corporation [NI's parent] wasn't fit and proper".
In trading rooms, there was talk that Odey Asset Management would be nursing losses, but a spokesman for the fund insisted the group had owned BSkyB stock for about 10 years. He described the share price fall as "nothing. It was 550p a year ago". But local authorities and pension funds are more concerned.
Theo Blackwell, Labour cabinet member for finance in Camden, said a review of the council's £877m pension fund holdings in BSkyB had been ordered on Friday. "Camden ordered a review with our financial advisers Legal & General on the impact of the continuing developments and uncertainty around this."
"Pension funds like Camden may start voting with their feet in order to secure more stable returns for staff and pensioners," he said.
Other local authorities are also thought to be considering action.
Sam Hart, media analyst at broker Charles Stanley said: "Murdoch's plan to bid for the satellite operator has been kicked into touch.
"Shareholders are discounting the possibility that this bid won't happen for the foreseeable future. Some people wonder if it will happen at all. It could take years before the various inquiries have wound up, so the deal has been pushed much further back than anyone would have guessed a week ago."
Several institutional investors agreed with Hart that the prospect of a deal happening anytime soon was fading. One said: "As things stand, it would be inconceivable for such a deal to receive political clearance. There would be a huge uproar." Brokers say that, without a bid, BSkyB would be worth between 695p and 725p a share.