BSkyB will spend £1 billion (€1.1 billion) to placate investors who lost out after News Corp bowed to public outrage over a hacking scandal and dropped a bid to take full control of the satellite broadcaster.

BSkyB, whose board yesterday voted unanimously to keep News Corp boss Rupert Murdoch's son James as its chairman, said it would return £750 million to investors with a share buy-back and a further £253 million via a hike in its dividend.

Shares in BSkyB have fallen over 15 per cent since a long-simmering phone hacking case erupted this month, derailing the planned buyout, shutting down Mr Murdoch's 168-year-old News of the World newspaper, ending the careers of two top policemen and rocking the British political establishment.

News Corp stock, which already owns 39 per cent of BSkyB, have fallen 10 per cent on fears of reputational damage to the wider group, wiping billions of dollars off its market value and shaking Mr Murdoch senior's grip on the media group. News Corp's stake will remain unchanged after the buy-back.

Allegations of hacking at News Corp's British newspapers, and in particular reports journalists accessed the voicemails of murder victims, have triggered a judicial inquiry and calls from some politicians to cap Mr Murdoch's media ownership, making any renewed approach for BSkyB a distant prospect.

"While Sky is not immune to tougher economic conditions, we have continued to see good demand across our product portfolio," BSkyB chief executive Jeremy Darroch said in a statement announcing the company's full year results today.

Reuters