News Corporation has increased its offer to take full control of BSkyB, which has again been rebuffed by the broadcaster, but the two companies have agreed to hold talks to find a mutually agreeable price and tackle regulatory issues.

It emerged last night that Rupert Murdoch's News Corporation had made a bid of 675p per share in cash to take control of the 61% in BSkyB the company does not already own. The offer was rejected by BSkyB's independent directors as undervaluing the company.

News Corporation has raised its proposal to 700p per share in cash, which values the 61% stake at £7.8bn ($11.5bn), which prompted BSkyB's independent directors to call for talks "with the objective of achieving an agreed proposal for the mutual benefit of all shareholders".

However, BSkyB said that the new proposal still "significantly undervalued" the company and that regulatory and pre-financing conditions added "considerable uncertainty to when and whether any formal offer could be made".

BSkyB said that it would accept a proposal from News Corporation if it "would deliver in excess of 800p per share".

"News Corp and the BSkyB independent directors have been unable to reach a mutually agreeable price at the current time," said News Corporation in a statement. "However, both parties have agreed to work together to proceed with the regulatory process in order to facilitate a proposed transaction and, accordingly, we have agreed to enter into a cooperation agreement".

News Corporation said that it intended to fund the deal with a "significant portion" of its cash reserves, which were $8.2bn at the end of March, and that taking full control would reduce the company's reliance on advertising and boost its global footprint.

"Our increased proposal represents both an attractive valuation," said the News Corp deputy chairman, Chase Carey. "We believe that this is the right time for BSkyB to become a wholly-owned part of News Corporation with its greater scale and broader geographic reach. 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."

News Corporation said that a "preliminary assessment" indicated that there were regulatory hurdles to the existing deal and that filings would be made as soon as possible.

BSkyB said that it was putting together a committee of independent directors and executive directors "with authority to exercise all powers of the board in relation to the possible offer and any matters relevant to the proposal".

"Based on careful review and advice, it is the unanimous view of the independent directors that there is a significant gap between the proposal from News Corporation and the value of the company," said Nicholas Ferguson, senior independent non-executive director at BSkyB.

BskyB is being advised by Morgan Stanley and UBS. Deutsche Bank and JP Morgan Cazenove are acting as financial advisers to News Corp.

BskyB's share price rose 21%, up by 126p to 726.5p, in early trading.

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