Flextech ties up pay-TV deal

Pearson, the media conglomerate, and Cox Communications, the US cable company, have reached a preliminary agreement to sell their 15 per cent stakes in UK Gold and UK Living, two pay-television channels, to Flextech, the cable and satellite broadcaster controlled by US cable giant TCI. The stakes are worth pounds 30m each.

In exchange for its shares, Pearson will get voting stock in Flextech representing equity of about 4.6 per cent of the company, although this could change depending on Flextech's share price when the deal is finalised.

It is still unclear how many votes will be attached to the voting stake. TCI is known to be seeking to avoid diluting its current holding, which gives it 51 per cent of the votes. Cox Communications is believed to have secured a similar deal.

The preliminary agreement opens the way for Flextech to complete its recently announced joint venture with the BBC to launch as many as eight pay-television channels on satellite and cable from next summer. A final agreement could be reached as early as November. It also gives Pearson a stake in a company many analysts expect will emerge as a "second force" in the supply of programming in the pounds 1bn market for pay-television.

Negotiations between Flextech and Pearson on the new pay-television channels were complicated by the need to conclude a complicated set of talks involving the BBC, Pearson and Cox Communications, which were aimed at consolidating Flextech's holdings in the two channels.

Once the UK Gold and Living consolidation is formally in place, BBC/Flextech can broadcast programmes from the extensive library of the BBC, the rights to which are currently held by UK Gold, the "golden oldie" nostalgia channel.

According to sources close to the talks, Pearson has won new service contracts from Flextech in exchange for its agreement to sell the UK Gold/Living stakes. Pearson Television handles the transmission services for UK Living, as part of its pounds 90m a year transmission business.

Under the provisionally agreed deal with Flextech, Pearson will now provide similar services for UK Gold, Bravo and Discovery, which is worth about pounds 2m annually.

As part of the deal, Pearson, which owns Thames Television and Grundy Worldwide, has also agreed to move some of its production activities to Flextech's studio in Maidstone.

Flextech and the BBC hope to complete their programming deal by the end of the year. The two briefed cable industry executives and media analysts Monday night on their plans for the new channels, in a presentation one analyst said was "slick and impressive." Flextech shares rose 21p to 611p.

The eight channels will include arts, sport, documentaries, current affairs and even a repeats channel.