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Pearson TV Strikes a Multibillion-Dollar Deal With CLT-UFA

The link-up could open the European door for U.S. media companies.

LONDON -- The merger of Pearson's television production business with Europe's largest commercial broadcaster CLT-UFA has put the spotlight firmly back on the European media sector.

Shares in media stocks soared after Friday morning's news of the tie-up between Pearson and CLT-UFA to create Europe's largest television company. However, it is hard to see any alliance between such European firms that could compete in size or scope with the new entity. Translation: These European media companies may instead need to seek an alliance with a partner across the Atlantic.

Shares in Pearson were trading in London up 296 pence, or 14.4%, to 23.50 pounds, while Belgium's

Audiofina

, which together with Germany's privately held

Bertelsmann

owns CLT-UFA, rose 23.3% on the

Luxembourg Stock Exchange

.

Under the terms of the agreement, Pearson/CLT-UFA's radio and TV entities, which in 1999 had combined revenue of 3.8 billion euros ($3.7 billion), will be merged into Audiofina. Pearson will own 22% of the new venture, Bertelsmann will own 37% and GBL will own 30%. The new company will be renamed and seek a

London Stock Exchange

listing.

Analysts estimate the new company will be worth as much as 25 billion euros, and it will give Pearson, which produces shows such as

Baywatch

, access to CLT-UFA's 22 television channels in 11 countries with 120 million viewers a day.

The logic behind this deal is not about cost-cutting, but size and scope.

TheStreet Recommends

Baywatch to Americans, Alerte a Malibu to the French

"Everyone is looking to go pan-European, and the creation of a media company of such a size is really fantastic," says Ygal Abend, analyst with the Belgian brokers

Petercam

. Abends says the new company is "now the biggest with a dominant or sizable share of all the important television markets."

This leaves the remaining players in Europe looking like walk-ons in a large production.

"There is no one left," says Christophe Cherblanc, media analyst with

SG Securities

in Paris. "Holland's

Endemol

was an important player, but now it has joined with

Telefonica

in Spain, all you have left are localized players like France's

TF1

and small independent companies."

Sophie Rouard, media analyst with the Brussels stockbrokers

Puilaetco

, agrees. "There aren't any other companies that are so pan-European. There really aren't two other groups who could merge and take such a position."

As such, the only route available to the remaining European media companies of any size is to look for a partner across the Atlantic.

An American in Paris

That refocuses attention on the rumors last month that French conglomerate

Vivendi

(VVDIY)

is in talks with Canada's

Seagram

(VO) - Get Vanguard Mid-Cap ETF Report

and

Cox Communications

(COX)

to form a media giant worth more than $100 billion.

Although all the companies have denied the rumors, analysts say Seagram's film and media business would fit well with Vivendi's plans for a multiaccess media portal, or MAP.

It was also reported today that Rupert Murdoch's

News Corp.

(NWS) - Get News Corporation Class B Report

, whose

BSkyB

(BSY)

satellite company is 24.5% owned by Vivendi, is in talks to join MAP. BSkyB shares were up 5.8%, while Vivendi shares were unchanged on the Paris

Bourse

.

Shares in the U.K.'s

Carlton Communications

(CCTVY)

rose 11.85% amid hopes that the creation of such an awesome competitor for the TV company would make the U.K.'s antitrust authorities, who are currently examining the deal, look more favorably on Carlton's proposed merger with

United News & Media

(UNEWY)

. United's shares were trading up 4.26%.

It may seem strange for a company that owns titles such as the

Economist

and

Financial Times

to also produce programs such as

Baywatch

.

Yet, it illustrates that Pearson is prepared to do as the Americans do, to prevent being taken over by them.