BSkyB: Why Has Murdoch Changed Bid Proposal?

News Corp's move to renege on a commitment to spin off Sky News into a separate company was designed to end the political impasse surrounding the deal and allow the Competition Commission to have the final say.

Shortly afterwards Culture Secretary Jeremy Hunt referred News Corporation's proposed takeover of BSkyB - the owner of Sky News - to the Competition Commission.

In a statement the company said: "News Corporation 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."

An investigation by the Competition Commission is expected to take 24 to 32 weeks.

BSkyB's share price fell by 7% at the open of trading to under 700p - lower than the amount bid originally by Rupert Murdoch's News Corporation in June 2010 - and the lowest level since last autumn.

News Corporation also struggled, with shares falling 6.72% on the Nasdaq as a result of the ongoing scandal.

The scale of the fall was a shock to many, given the share price drop late last week and underlines the feeling in the market that the chances of News Corp getting total ownership of BSkyB, which owns Sky News, have severely receded.

London's FTSE 100 closed with BSkyB shares standing at 715p - a fall of more than 4.4%.

Following the nod from the Culture Secretary Jeremy Hunt at the start of the month, the market had been gearing up for a takeover.

By the start of last week, BSkyB's share price hit 850p.

But as the phone hacking scandal escalated, the stock lost 12% of its value across last week, wiping over £1bn off the company's market value.

On Friday alone, five times as many shares changed hands compared to a normal trading day, the largest volume since news of a bid broke, underlining the severity of fears in the market.

Many of those offloading their shares were the same hedge funds and the like who had pushed up the share price sharply in preceding weeks in the hope of BSkyB securing a bid significantly above the 800p suggested by its independent directors last year.

Over in New York, News Corp lost 7% of its value.

So taking into account the fall, BSkyB shares have lost almost a fifth of their value in just a week.

Does this mean traders are assuming the deal is dead? Many think there is still a chance it will go through, albeit a relatively small one, but with severe delays.

That is one reason why the share price is still above the 577p it was at the time last year's bid was revealed.

Ironically, given the recent price fall, that may mean that ultimately News Corporation is able to secure a takeover of BSkyB at a lower price than they would have done previously.

If the deal is vetoed by regulators and the Government, it could throw up some interesting issues.

Separately, the Culture Secretary has written to the broadcasting regulator Ofcom to ask if the phone hacking scandal has raised any issues to suggest that News Corporation staff are not "fit and proper" to hold a broadcasting licence.

If any "fit and proper" test isn't met, then there will be questions about whether BSkyB's current licence is in the right hands.

In an extreme scenario, some question if that might mean News Corp is obliged to sell the 39% of BSkyB it currently owns.

All of this means there's probably limited upside to the share price in the short term. But how much further could it fall?

Of course the twists and turns of the next few weeks could mean further volatility.

But some investors point out that the company itself is fundamentally sound, and one of a minority who have beaten the current economic downturn, meeting a target of 10 million subscribers ahead of schedule and raising its average revenue per subscriber by 8%.

Hedge fund Odey Asset Management actually increased its holding of BSkyB by three million shares to around 2.5% at the end of last week, as it saw the shares, then around 750p, as good value.

Odey's head labelled it a "brilliant business", and points out that BSkyB is primarily a technology company, not a news one.

Analysts say that without a bid, the business is still worth more than 700p a share and has good prospects - the very reason of course that it was so attractive to News Corporation in the first place.