Reports from the annual sales conference of Mediaset, Mr Berlusconi's media group, suggest that the Italian former prime minister, Mr Murdoch and Prince Alwaleed will invest $2bn in return for up to 25 per cent of Mr Kirch's privately-owned media empire.
Tarak Ben Ammar, an adviser to Prince Alwaleed and a member of the Mediaset board, said the negotiations were going ahead. "The Kirch Group represents the only real opportunity in Europe," he added.
Earlier this week Fedele Confalonieri, the Mediaset chairman, confirmed for the first time that a deal was on the table. "Our company was one of the first broadcasters to attempt to build a pan-European operation in the 1980s, but the time wasn't ripe yet," he said. "Now we're sitting at the table again."
Meanwhile Jan Mojto, a Kirch executive, said: "We're at the last stage of the game and we'll know next year how things turn out."
However, a spokeswoman for Mr Murdoch's News International said suggestions that a deal was close were "speculation".
If successful, the agreement would create a pan-European television group with interests in Germany, Italy, France and Spain. It would also be able to tap into the sporting and film rights held by British Sky Broadcasting, the satellite television group in which Mr Murdoch holds a 41 per cent stake. The alliance would create a powerful company capable of taking on Canal Plus, the French giant that has a stranglehold on much of Europe's pay-TV market.
Mr Kirch's group is in desperate need of a cash injection as it struggles to fund a plethora of pay-TV and publishing projects. A mooted television joint venture with Bertelsmann, the rival media operator, collapsed earlier this year after the European Commission imposed strict controls on the alliance.
Mr Murdoch is also keen to establish a foothold in the German pay-television market, which until now has been impenetrable for other media companies.
Prince Alwaleed already has a close association with Mr Murdoch, having bought shares in the publicly-quoted News Corporation last year.Reuse content