3RD UPDATE: Trying to unravel the confusion, a News Corp insider tells us: “We are withdrawing our proposed undertaking to spin off Sky News. As a result, the consideration of plurality will move from [UK Culture Secretary] Jeremy Hunt to the Competition Commission for review.” (News Corp. had previously made a series of concessions in relation to the BSkyB bid in an attempt to prevent a lengthy regulatory investigation by the UK’s antitrust regulator. These concessions included spinning off its 24-hour news channel, Sky News. News Corp withdrew these concessions in light of the regulatory review.) Deadline’s Tim Adler says London sees this as a very clever face-saving move by News Corp. Referring it to the Competition Commission, which will take months to compile its recommendation until early 2012, means that News Corp is trying to take the politics out of the approval process. The Big Media giant hopes to sit back and wait rather than be bounced into withdrawing its bid completely. But that may be wishful thinking: British Deputy Prime Minister Nick Clegg said Monday that News Corp “reconsider” its bid for BSkyB. Wall Street believes the effect will be the same: the BskyB bid looks dead. By midday, News Corp shares had sunk nearly 7%.

Meanwhile, new revelations keep coming up by the day and even hour: the latest is from former UK Prime Minister Gordon Brown who says he, too, was hacked by Rupert Murdoch’s journalists who tried to illegally obtain private information from his telephone and financial records for more than 10 years as well as medical information about his family.

2ND UPDATE: News Corp just came out with its announcement regarding its BSkyB bid, and Wall Street is trying to decipher what is an indecipherable statement: When is a “withdrawal” an actual withdrawal of News Corp’s BSkyB bid? News Corp uses the words “withdrawing its proposed undertakings”:

LONDON — News Corporation today announces that it is withdrawing its proposed undertakings in lieu of reference to the Competition Commission with respect to its proposed acquisition of BSkyB. Should the Secretary of State for Culture, Olympics, Media and Sport decide on this basis to refer the proposed transaction to the Competition Commission for a detailed review, News Corporation is ready to engage with the Competition Commission on substance. 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.

Immediately following, UK Culture Secretary Jeremy Hunt makes these relevant remarks regarding the proposed merger of News Corp/BSkyB:

I also have to make a decision about News Corporation’s plans to buy the shares it does not already own in BSkyB. I know that colleagues on all sides of this House and the public at home feel very concerned at the prospect of the organisation which allegedly allowed these terrible things to happen being allowed to take control of what would become Britain’s biggest media company.

I understand that in the last few minutes News Corporation have withdrawn their Undertakings in Lieu.

On January 25th I said I was minded to refer News Corporation’s proposed merger with BSkyB to the Competition Commission in the absence of any specific undertakings in lieu.

As a result of News Corporation’s announcement this afternoon I am now going to refer this to the Competition Commission with immediate effect and will be writing to them this afternoon.

Today’s announcement will be an outcome that I am sure the whole house will welcome.

It will mean that the Competition Commission will be able to give further full and exhaustive consideration of this merger taking into account all relevant recent developments.

Mr Speaker, protecting our tradition of a strong, free and independent media is the most sacred responsibility I have as Culture Secretary. Irresponsible, illegal and callous behaviour damages that freedom by weakening public support for the self-regulation upon which it has thrived. By dealing decisively with the abuses of power we have seen, hopefully on a cross-party basis, this government intends to strengthen and not diminish press freedom, making this country once again proud and not ashamed of the journalism that so shapes our democracy.

MONDAY AM UPDATE: DETAILS COMING… SOURCES JUST TOLD ME NEWS CORP IS WITHDRAWING ITS BSKYB BID. AN OFFICIAL ANNOUNCEMENT IS EXPECTED. SOON…

That would mean the scandal sank a deal worth more than all of Rupert Murdoch’s papers combined — his $14-billion bid for the 61% of the pay-TV operator that News Corp doesn’t already own. Murdoch’s deal was to have been approved at the start of the weekend but then was delayed until the Fall because of the scandal. Owning BSkyB outright would mean News Corp was getting its hands on the UK satellite giant’s swelling £5.7 billion ($9 billion) revenues. It would also cement Rupert’s position as the most powerful media baron in Britain. It was already clear that, because of the scandal, UK’s FCC equivalent Ofcom would further delay News Corp’s 100% takeover of BSkyB that would have been the biggest deal of Murdoch’s storied career. So any decision to withdraw his bid may be seen as his biggest business defeat. Even the delay is disastrous for him, since BSkyB also is the last and most important piece of his ambitious plan to control satellite TV across the globe.

Had Murdoch been successful, he would have been the UK’s leading television gatekeeper determining what channels could thrive or fail. BSkyB also is a major provider of broadband and phone services, which makes it a dependable source of cash. When Murdoch made his formal bid for BSkyB last year, COO Chase Carey said that it “presents an opportunity to consolidate a core business with which we have been closely associated for over two decades. News Corporation will also benefit from increasing the geographic diversification of our earnings base, reducing our exposure to cyclical advertising revenues and increasing our direct consumer subscription revenues.” As a minority owner of BSkyB, Murdoch does not have direct access to the satellite company’s cash flow of more than $800 million a year. Investors also didn’t give News Corp the credit for its BSkyB holdings that Murdoch felt his company deserved. But shareholders had mixed feelings about the acquisition. Many wanted Murdoch to use his resources to buy back shares – in effect, give money back to investors. BSkyB’s stock has been falling, and today the first of what undoubtedly will be many shareholder lawsuits related to the phone-hacking scandal was filed in Wilmington, Delaware, where News Corp is incorporated.

Any withdrawal of News Corp’s BSkyB bid follows British regulatory concerns as to whether News Corp would be a fit-and-proper owner for BSkyB in light of the worsening phone-hacking scandal and its reach to top execs with the Big Media giant. James Murdoch has admitted News International effectively misled the UK Parliament while he approved secret out-of-court settlements for illegal activity. Murdoch’s Dow Jones & Co CEO Les Hinton is under fire for failing to come clean about the scandal when he was executive chairman of News of the World‘s owner News International. And this weekend Rupert Murdoch himself put on a show for the cameras of standing beside his CEO of newspaper division News International, Rebekah Brooks, who was editor of News of the World when the alleged phone hacking of murdered schoolgirl Milly Dowler and families of London bombing victims took place. (In perhaps the most egregious incident, investigators hired by News of the World admitted to erasing messages on the cell phone of the young murder victim, leading police to mistakenly believe she may have been still alive.) The newspaper’s reporters, with the admitted knowledge of Brooks and others, also paid off police officials in exchange for information on numerous investigations. The ever-widening scandal now includes as many as 4,000 individuals who may have been the targets of unlawful phone call intercepts, including British soldiers killed in Afghanistan and victims of terrorist attacks.

Needless to say, all this is highly illegal, which is why British politicians are distancing themselves from Brooks and the Murdochs including Prime Minister David Cameron whose own media strategist, News of the World’s former editor Andy Coulson was just arrested for his role on July 8th, as was the paper’s former royal family correspondent. Coulson, along with Rebekah Brooks and Rupert’s heir apparent James Murdoch, are believed to have had explicit knowledge of the phone-hacking activities as part of the paper’s zeal in pursuing its sensational stories. James has acknowledged that he personally approved the payment of nearly £2 million to silence two of the resulting lawsuits against the company.

Today, a group of institutional investors of News Corp amended an existing complaint alleging rampant nepotism over Elizabeth Murdoch’s sale of Shine to News Corp and failed corporate governance to include the the media giant’s role in the ongoing British phone-hacking scandal. The shareholders allege that because the board did not intervene when it learned of these problems years ago, News Corp was forced to shutter News of the World, a 168-year-old business that was the largest-circulation English language newspaper in the world. Leading securities and corporate governance law firms Grant & Eisenhofer P.A. and Bernstein Litowitz Berger & Grossmann LLP are serving as co-lead counsel for plaintiff shareholders, led by Amalgamated Bank, trustee for various LongView investment funds, along with Central Laborers Pension Fund and other public pension funds.

SUNDAY PM: UK’s Independent newspaper is reporting in Monday’s edition that Rupert Murdoch’s takeover of BSkyB “appeared to be dead in the water” as of tonight. It says British government lawyers are drawing up a plan to block Murdoch’s bid for the pay-TV operator because of his media’s phone-hacking scandal. The Independent writes that “Downing Street sources confirmed that Government lawyers were drawing up a strategy to halt the £9bn deal which looked a certainty only a week ago.” Separately, the phone-hacking allegations have also prompted Britain’s FCC equivalent, Ofcom, to say it will consider whether News Corp directors are “fit and proper” persons to run BSkyB.