LONDON (The Deal) -- The U.K.'s British Sky Broadcasting Group has sealed a deal to buy leading shareholder 21st Century Fox (FOX) Italian and German pay-TV interests, creating a company with 20 million subscribers and handing £5.28 billion ($9 billion) in cash and assets to Rupert Murdoch's film and TV powerhouse as it weighs increasing its unsolicited $80 billion bid for Time Warner  (TWX).

After more than two months of discussions, BSkyB agreed to pay £2.07 billion plus a 21% stake in National Geographic Channel International valued at £382 million for 21st Century Fox's wholly owned Sky Italia. It will pay 21st Century Fox £2.9 billion for a 57.4% stake in separately listed Sky Deutschland and make a €6.75-per-share ($9.08) offer for the outstanding shares.

The transactions would lift BSkyB's revenue from £7.6 billion to £11.2 billion, increase its purchasing power for programming like Germany's Bundesliga soccer matches, and allow it eventually to bring quad-play services to a pan-European audience. BSkyB shareholders, accustomed to regular share buybacks, had earlier express skepticism about the plans and worries that the U.K. group would end up paying too much for Sky Italia.

The Isleworth, England buyer on Friday surprised investors by announcing a share placement equivalent to 9.99% of its pre-issue capital. It said on Friday afternoon it raised £1.36 billion before expenses and sold the shares at 870 pence. BSkyB shares were down 5.4%, at 875 pence.

The potential to expand in Germany is a "huge market opportunity," said Peel Hunt's Alex DeGroote, noting that Sky Deutschland is only one-sixth of the size of BSkyB and that pay-TV penetration in Germany remains low. But, he added: "Make no mistake, this is a very long-term bet and I wouldn't underestimate the complexity of putting these businesses together."

BSkyB said the union would create £200 million of synergies by the end of the second year and be "strongly accretive" to earnings from year three, and neutral before that.

The enlarged BSkyB would have net debt of about £5.5 billion - up from £1.2 billion as of June 30, said DeGroote. This would rise to more than £7 billion if minority Sky Deutschland shareholders tender their stock.

BSkyB Chairman Nicholas Ferguson has been handling talks with 21st Century Fox and he said that BSkyB's independent directors agreed that the deal "represents an attractive financial opportunity that will deliver growth and value creation for all shareholders." BSkyB shareholders must back it.

Sky Deutschland shares rose €0.12, or 1.8%, to €6.78 on Friday. BSkyB, which said in May it would offer no premium for the German group's shares, has set no minimum acceptance condition for the tender.

Debevoise & Plimpton's Peter Wand said that for all BSkyB's equanimity about how much of Sky Deutschland it wants to reel in, it needs to achieve 75% ownership in order to get a so-called domination agreement and therefore access to Sky Deutschland's cash flow. Forging that dominaton agreement typically means more favorable debt financing, he said.

"From a group financing perspective that is what you want to have - but BSkyB won't want to tell the market that they are under pressure to get there," he said.

Among significant minority Sky Deutschland shareholders, T. Rowe Price Group (TROW - Get Report) recently disclosed it had crossed the 3% ownership threshold, with Odey Investment plc and Baillie Gifford in early July and December, respectively, revealing that they had cut their equity stakes just below the 3% level that triggers disclosure.

Sky Deutschland said its management and supervisory board will work with advisers to evaluate the offer before issuing a recommendation.

The agreement comes three years after the-then News Corp.'s  (NWSA - Get Report) humiliating defeat when it attempted to buy out the rest of 39.1%-owned BSkyB. The collapse of that bid amid a phone hacking scandal at News Corp.'s U.K. print division precipitated the New York company's split into two.

As for 21st Century Fox, reports suggest that it is considering offering up to $100 per share, or about $88 billion, for Time Warner's stock, so the funds from the pay-TV sale should plug the gap between that price and its initial gambit.

The New York company on Friday spent £531.6 million on the BSkyB share placing to maintain its 39.1% BSkyB holding. It said it expects to receive net proceeds to be reinvested from the sales of Sky Italia and Sky Deutschland of about $7.2 billion.

In a statement, Chairman and CEO Rupert Murdoch said it will continue its share buyback program "regardless of any potential acquisition or investment activity by the company."

The company has returned $12 billion to shareholders in the past three years and will announce details of its new buyback program at its Aug. 6 results presentation. It's on track to return $4 billion in the year to August.

Barclays' (BCS) Matthew Smith and Hugh Moran are advising BSkyB, as are Morgan Stanley's Simon Smith, Laurence Hopkins and Jan Weber. Barclays and Morgan Stanley are also handling the share placing. A Herbert Smith Freehills LLP team including Stephen Wilkinson, Malcolm Lombers, Chris Haynes, Kyriakos Fountoukakos and Joel Smith provided legal advice.

Clifford Chance's Rob Lee advised BSkyB on new debt facilities it is taking on to help fund the deal.

21st Century Fox took financial advice from a Deutsche Bank team led by Gavin Deane; from Lazard's Charlie Foreman and Nicholas Shott; and from Goldman, Sachs & Co. Legal advice came from Allen & Overy LLP's Andrew Ballheimer, Simon Toms, Oliver Seiler, Hans Diekmann, Antonio Bavasso and Paolo Ghiglione. In Italy Allen & Overy worked with Duccio Regoli of Mazzoni e Associati.

BSkyB announced the deal as it released full-year results which showed revenue rose 6.5% to £7.61 bilion while Ebitda declined 1.5% to £1.67 billion because of investment. It added 324,000 new customers. BSkyB has 11.5 million customers, Sky Italia 4.8 million and Sky Deutschland 3.7 million.