London (AFP) - Rupert Murdoch's media empire 21st Century Fox has struck a mega deal with British satellite television group BSkyB to create a pan-European pay-TV giant, the two companies announced on Friday.
BSkyB, 39-percent-owned by 21st Century Fox, said it had agreed to buy Fox's 100-percent stake in Sky Italia and its 57.4-percent interest in Sky Deutschland.
The new project, named "Sky Europe" by observers, is seen as a bid by media mogul Murdoch to strengthen his European television operations as the telecommunications sector enters the market to screen live football matches featuring some the world's biggest clubs.
Analysts said the deal would give 21st Century Fox an opportunity also to make a renewed bid for rival Time Warner.
BSkyB said it planned to acquire the rest of Sky Deutschland from the German group's minority shareholders, creating a pan-European TV giant in deals that could cost the British group up to £7.0 billion ($11.9 billion, 8.8 billion euros).
- Shares tumble on news -
The London-listed company will pay for the transaction with existing cash resources, debt, and a placing of new shares which successfully raised £1.36 billion on Friday. The placing comprised almost 10 percent of BSkyB's stock.
BSkyB added that it would also suspend its share buyback programme with immediate effect.
The news sent the group's share price sliding by more than five percent.
"The enlarged company will be a world-class multinational pay TV provider that serves 20 million customers and brings together the leading pay TV businesses in three of Europe's four biggest markets," BSkyB said in the statement.
James Murdoch, son of Rupert and the co-chief operating officer at 21st Century Fox, said "a combination of the European Skys would create enormous benefits for the combined business and for our shareholders".
As part of the tie-up, BSkyB said it would transfer its minority stake in National Geographic Channel to 21st Century Fox at a value of £382 million.
"By creating the new Sky, we will be able to use our collective strengths and expertise to serve customers better, grow faster and enhance returns," BSkyB chief executive Jeremy Darroch said in Friday's statement.
BSkyB is facing intense competition from British telecoms firm BT, which launched its own pay-TV sports channels last year showing English Premier League football.
BT outgunned BSkyB last November to secure exclusive rights to televise across Britain all of Europe's Champions League and Europa League football matches for three seasons from 2015.
BSkyB, which also sells phone and Internet services to its customers, said on Friday that its annual net profit dropped 11.6 percent to £865 million in the 12 months to June, hit in part by costs linked to broadcasting rights to the Premier League, which last season was won by Manchester City.
Deal is 'major challenge'
Shares in BSkyB slumped 5.46 percent to close at 874.5 pence on London's benchmark FTSE 100 index, which finished 0.44 percent lower on Friday.
"The weakness in the share price ... is reflective of the fact that the acquisition will represent a major challenge to execute, at a time of fierce competition and therefore potential growth erosion in Sky’s domestic market," said Richard J Hunter, head of equities at Hargreaves Lansdown Stockbrokers.
"Sky is clearly taking the strategic view that Pay TV, already ingrained in the US culture, will become prevalent in Europe."
Earlier in July, 21st Century Fox revealed that it had made an unsuccessful bid for Time Warner.
A successful bid would merge two of the world's biggest media-entertainment empires. The initial offer was for $80 billion, a source familiar with the talks had told AFP.
Also this year, British mobile-phone group Vodafone bought Spanish cable giant Ono for 7.2 billion euros, having already snapped up Kabel Deutschland, the largest cable operator in Germany, for 7.7 billion euros in 2013.
US giant Liberty Global meanwhile took over its British rival Virgin Media last year in a deal worth $23.3 billion.