Live blog as it happened: Leveson Inquiry - Frederic Michel and Adam Smith give evidence
The Culture Secretary warned that James Murdoch was "furious" about Business Secretary Vince Cable's handling of the matter in a private briefing to David Cameron.
The document, dated November 19 2010, expressed concerns that referring the bid to Ofcom could leave the government "on the wrong side of media policy".
The dramatic disclosure came as Mr Hunt's special adviser Adam Smith gave evidence to the Leveson inquiry.
Mr Smith, who quit last month after admitting his contacts with News Corp lobbyist Fred Michel had got too close, insisted he had not been given any specific instructions by Mr Hunt or civil servants on his role in the quasi-judicial decision on BSkyB.
He said he had assumed he should be "managing relationships" with interested parties - but conceded that his only communications were with News Corp.
Mr Hunt's briefing note to the Prime Minister was prepared barely a month before the Culture Secretary was put in charge of the BSkyB decision, after Mr Cable was caught out voicing his opposition to the bid in a newspaper sting.
Mr Hunt, who had spoken to James Murdoch on the telephone a few days earlier, wrote in a "fortnightly update" for the premier: "James Murdoch is pretty furious at Vince's referral to Ofcom. He does not think he will get a fair hearing from Ofcom.
"I am particularly concerned about this because News Corp are very litigious and we could end up in the wrong place in terms of media policy.
"Essentially what James Murdoch wants to do is repeat what his father did with the move to Wapping and create the world's first multi-platform media operation available from paper to web to TV to iPhone to iPad.
"Isn't that what all media companies have to do ultimately? If so, we must be very careful that any attempt to block it must be done on genuine plurality grounds and not as a result of lobbying by competitors."
Mr Hunt went on: "The UK has the chance to lead the way on this as we did in the '80s with the Wapping move, but if we block it, our media sector will suffer for years.
"In the end I am sure sensible controls can be put into any merger to ensure there is plurality.
"But I think it would be totally wrong to cave in to the Mark Thompson/C4/Guardian line that this represents a change of control given that we all know Sky is controlled by News Corp now anyway.
"What next? Ofcom will issue their report saying whether it needs to go to the Competition Commission by December 31.
"It would be totally wrong for the Government to get involved in a competition issue, which has to be decided at arms length.
"However, I do think you, I, Vince and the DPM should meet to discuss the policy issues that are thrown up as a result."
Asked about the briefing note by counsel for the inquiry Robert Jay QC, Mr Smith insisted it was "very similar to what (Mr Hunt) had said previously, that he didn't see any particular problem with it".
Mr Smith said he did not know of any meeting that followed the missive, a draft of which was emailed to him by Mr Hunt.
The inquiry heard that Mr Hunt had been advised by the Culture Department's legal director that, while it would be within the law to make representations directly to Mr Cable on the BSkyB issue, "it would be unwise to do so".
Mr Hunt had signalled immediately after taking over from Mr Cable that he wanted to be "more open" than before, and fair to "everyone including News Corp".
Asked if the feeling was that Mr Cable had been unfair to News Corp, Mr Smith replied: "I think that was the view, yes."
Questioned on whether he was given specific instructions about his role in handling the News Corp bid, Mr Smith replied: "I wasn't told I couldn't do anything in particular. Because it was Mr Hunt's decision, the discussion was more about what he could or couldn't do. I don't remember being told about myself."
He added: "There was no direct instruction, if you like, no."
Mr Smith said he had perceived his role as "managing relationships with interested parties" and "one of the points of contact for News Corp, to act as a buffer, and as a channel of communication".
He said he did not remember Mr Hunt or civil servants telling him he was a "point of contact" with News Corp, although he added that it "would not have surprised" anyone in the department.
Pressed on whether he had communicated with parties opposed to the bid, Mr Smith replied: "I don't remember them getting in touch with me, no."
Referring to his personal views about the BSkyB bid, Mr Smith said: "I didn't, to be honest with you, particularly mind either way whether it happened or not.
"In a funny sort of way, I couldn't quite see why everyone was getting quite so worked up about it."
Earlier, the inquiry heard that Mr Michel exchanged more than 1,000 phone calls, emails and texts with Mr Hunt and his team during News Corp's BSkyB takeover bid.
The lobbyist suggested that the Culture Secretary knew Mr Smith was feeding him details of the Government's thinking about the proposals.
Mr Michel, News Corp's former director of public affairs in Europe, swapped warm text messages with Mr Hunt criticising BBC Director-General Mark Thompson, discussing their children and joking about tennis.
But he insisted he never had "inappropriate" contact with the Culture Secretary or his officials while campaigning for the BSkyB takeover to be approved.
The lobbyist exchanged 191 telephone calls, 158 emails and 799 texts with Mr Hunt's team between June 2010, when News Corp announced its bid, and July last year, when it abandoned the plan amid outrage over the News of the World phone-hacking scandal.
Of these, more than 90% were exchanged with Mr Smith, who himself sent 257 text messages to Mr Michel between November 2010 and July last year.
Asked if he thought the information he received from Mr Smith reflected Mr Hunt's position, Mr Michel said: "I would have to assume that special advisers, and there are not many around the Secretary of State - there were two in that case - always represent the view of their boss.
"There are two or three events where I probably had the impression that some of the feedback I was being given had been discussed with the Secretary of State before it was given to me."
In one case Mr Michel emailed Mr Smith in October 2010 with a News Corp briefing memo for Mr Hunt on the BSkyB issues. The special adviser responded: "Jeremy's response to this - 'persuasive'."
Mr Michel and Mr Hunt, whose wives both gave birth at Chelsea and Westminster Hospital in late May 2010, exchanged a series of friendly and jokey text messages during this period, the inquiry heard.
The lobbyist sent a text to the Culture Secretary on August 27 2010 in which he suggested that Mr Thompson had used a speech to the Edinburgh Television Festival to "whip up fears about Sky's success".
Mr Hunt replied: "Because he trains his guns on you, he failed to make his case to me."
After a formal meeting about the bid between Mr Hunt and News Corp officials on January 20 last year, Mr Michel wrote to the Culture Secretary: "Great to see you today. We should get little (the names of their children) together in the future to socialise! Nearly born on the same day at the same place. Warm regards. Fred."
The Culture Secretary responded just before midnight: "Good to see you too. Hope you understand why we have to have the long process. Let's meet up when things are resolved. J."
On March 3 last year, Mr Hunt announced he was minded to wave through the BSkyB takeover after News Corp offered to spin off Sky News as part of the deal.
The lobbyist wrote to him afterwards: "You were great at the Commons today. Hope all well. Warm regards, Fred."
The Culture Secretary replied: "Merci. Large drink tonight!"
On other occasions Mr Michel told Mr Hunt he was "very good... as always" when he appeared on Andrew Marr's Sunday morning programme on BBC1, and joked about backing Rafael Nadal against Andy Murray at Wimbledon.
Mr Michel admitted he was a "compulsive texter" but denied his messages to Mr Hunt were "a form of schmoozing".
The lobbyist denied accusations that he "puffed up" his contacts with the Culture Secretary's team to please Rupert and James Murdoch.
He wrote a series of emails to News Corp executives, including James Murdoch, quoting the views of "JH", but said this was shorthand and was based on conversations with Mr Smith rather than Mr Hunt himself.
Mr Michel told the inquiry: "I think my emails, as they were internal emails, were an accurate account of the conversations I have had."
"Whether there was any exaggeration or spin, it depends. I would say perhaps during the period of when we were dealing with BIS (the Department for Business, Innovation and Skills), the morale was quite low because we had not much success on representation of this.
"Maybe I was trying to keep the morale up internally."
The public affairs director was asked about an email, dated January 24 last year, in which he said he had obtained "absolutely illegal" information about what Mr Hunt would tell Parliament the next day.
Mr Michel said this comment was a "very bad joke", adding: "I think it was out of my surprise to get a briefing on the content of the statement at such an early stage. In hindsight, which is always a good thing, I wouldn't have used such words."
The inquiry, held at the Royal Courts of Justice in central London, was adjourned until tomorrow, when Mr Smith will complete his evidence and Department for Culture, Media and Sport Permanent Secretary Jonathan Stephens will appear.
Live blog as it happened: Leveson Inquiry - Frederic Michel and Adam Smith give evidence
PA
