BSkyB is to confirm today it has sealed a pounds 10bn deal to create Sky Europe, buying its sister pay-TV companies in Germany and Italy from Rupert Murdoch's21st Century Fox.
Murdoch's US-based film and TV group is expected to use its share of the proceeds to make an improved offer for rival media group Time Warner, after its earlier $80bn (pounds 47bn)-plus bid was rejected in June.
BSkyB, which is 39.1% owned by Fox, is expected announce the deal as part of its annual financial results. It marks the realisation of Murdoch's long-held ambition to create a pan-European pay-TV group, which will have 20 million subscribers, pounds 11bn in annual revenues and pounds 1.3bn profits.
Three years ago he was forced to abandon a bid to take full control of BSkyB, after the phone-hacking scandal at News of the World engulfed his media empire.
BSkyB will take full control of both Sky Deutschland, acquiring Fox's 57% stake and buying out other shareholders, and Sky Italia - which Fox wholly owns.
The value of the deal is not known. BSkyB has said it will only reach an agreement "at the right price" for shareholders, with the major question being the value of the struggling Sky Italia business.
Last week BSkyB sold its 6.4% stake in ITV to Virgin Media owner Liberty Global, raising pounds 481m to be put toward the Sky Europe deal.
BSkyB will have to seek shareholder approval, usually a formality in the case of any deal Murdoch wants done, given that Fox is the largest shareholder in the company. However, as a related party to the deal Fox will not be allowed to vote, leaving BSkyB chief executive Jeremy Darroch with the task of convincing a majority of the non-Fox shareholders that it is a good deal.
This week Time Warner's board changed the company's corporate articles in an effort to make a takeover by Murdoch harder. The amendment removed a provision allowing 15% of a company's shareholders to vote to call a special meeting, such as one to evaluate any offer by Murdoch. The change gives Time Warner more time to force an improved offer.
Moody's, the credit rating agency, this week issued a note saying Fox might have to raise its offer to $105 a share - $20 more than the initial bid - to secure a deal.
Fox is reportedly considering only going as high as $90 to $95, unless Murdoch wants to break with the tradition of financial caution he has applied since narrowly surviving a debt crisis in the early 1990s.
His company has lined up $25bn in loans from Goldman Sachs and JP Morgan to help finance the bid.
Under its unified ownership structure Sky Europe is unlikely to be able to strike pan-European deals for sports rights, such as the Premier League, because rights holders negotiate deals on a territory-by-territory basis.
However, the enlarged business is likely to benefit from cost-cutting in shared operations, and make better use of programming investments across multiple markets.
BSkyB is a more sophisticated operation than its German and Italian counterparts and believes it can boost the proportion of customers that take multiple products, such as TV and broadband, as well as introduce services such as the internet streaming service Now TV and film service Sky Store.
The company's UK and Ireland operation can reach 27 million households, while Sky Europe would have a target of 94 million, encompassing Germany, Italy and Austria.
Pay-TV penetration is much lower in Germany and Italy than BSkyB's home market, where traditional TV subscriber numbers have stagnated. The British operation, which has more than 10 million pay-TV customers, will be the engine of the proposed Sky Europe operation, accounting for 57% of subscribers, 68% of revenues and almost 90% of profits.
The deal is unlikely to run into any regulatory hurdles, and Fox has said that it is not looking to increase its stake in BSkyB beyond the current 39%.
Some observers have viewed the Sky Europe deal as a prelude to Murdoch making a renewed takeover bid for the UK's largest pay-TV broadcaster.
European regulators cleared Murdoch's previous attempt to take full control of BSkyB, but the bid fell foul of a cross-party revolt in the wake of the hacking revelations.
BSkyB's battle with BT, which has spent more than pounds 2bn on top flight sports rights such as Premier League matches, is expected to have dented full-year operating earnings by about 7% to pounds 1.24bn.
BSkyB's share price was up 1.2%, or 11p, to 925p yesterday.
Creation of Sky Europe is not expected to result in pan-European deals for sports rights but should produce cost savings Photograph: Buda Mendes/Fifa/Getty
The price BSkyB will pay for purchase of sister companies Sky Deutschland and Sky Italia, to create Sky Europe
The number of subscribers Sky Europe will have, with 57% of them accounted for by British operation BSkyB
BSkyB's share of Sky Europe profits, reflecting relatively low pay-TV penetration in Germany and Italy