Rupert Murdoch’s News Corporation has announced that it is dropping its planned bid to take full ownership of BSkyB.
The announcement came as the House of Commons was preparing to vote for a motion calling on Mr Murdoch to do so.
All three major party leaders had said they supported the motion, which would not be legally binding on News Corp.
The decision follows days of allegations about phone hacking by News Corp subsidiary News International.
“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 News Corp deputy chairman and president Chase Carey in a statement.
“News Corporation remains a committed long-term shareholder in BSkyB. We are proud of the success it has achieved and our contribution to it.”
BSkyB’s share price briefly dropped following the announcement to about 4% down for the day, before recovering.
The satellite television company has fallen some 20% since peaking a week ago, and is trading at a level not seen since News Corp first announced its bid plans in June last year.
A spokesman for the prime minister David Cameron welcomed the news: “As the prime minister has said, the business should focus on clearing up the mess and getting its own house in order.”
The BBC’s business editor Robert Peston said: “It’s a huge humiliation. This was [News Corp's] biggest investment plan of the moment. It was one of the biggest investments they’ve ever wanted to make.
“It is an extraordinary reversal of corporate fortune… And questions will now be asked whether this is the full extent of the damage to the empire.”
Robert Peston added there had been “a lot of speculation” that Mr Murdoch might now want to sell his UK newspapers, but the current state of the industry made them less attractive to potential buyers.
“The question is, who is going to pay him the price that they are worth? He will not want to sell those papers at a loss.”