Viewers to be offered shares in Sky float: Satellite broadcaster is set to be the UK's biggest non-privatisation issue, with value of pounds 5bn

BRITISH Sky Broadcasting viewers will be targeted by the City to buy shares in the satellite channel when it is floated later this year.

It will be the UK's biggest non- privatisation issue, with analysts estimating its market capitalisation at up to pounds 5bn - twice the size of existing television groups such as Carlton Communications.

'There are three and a half million BSkyB subscribers, and it seems to us they are a natural source of potential retail interest,' a spokesman for Lazard Brothers, the merchant bank jointly advising on the flotation, said.

'Sky is extremely experienced in marketing,' he said. 'We are exploring several ways of selling it to subscribers.'

Shareholders in BSkyB confirmed yesterday that they had reached an outline agreement that the channel should be floated soon, probably before Christmas. It will seek a listing in London and New York.

The main beneficiaries will be its four main shareholders - Rupert Murdoch's News Corporation; Pearson, which publishes the Financial Times; the French media group Chargeurs; and Granada, the television and service station conglomerate.

The channel was formed in 1990 by merging the ailing British Satellite Broadcasting with the equally sickly Sky Television. Its fortunes have been transformed by switching to subscription-only for most of its channels. Last year it added more than a million subscribers - it now has about 3.5 million - and made operating profits of more than pounds 185m.

The pounds 5bn flotation promises to be a bonanza for the satellite network's City advisers.

These include Barclays de Zoete Wedd, which has fought off stiff competition to become the company's joint London stockbroker alongside the US investment bank Goldman Sachs.

Goldman is likely to be the biggest beneficiary from the flotation. It will act as global co-ordinator and lead manager, while Goldman and Lazard Brothers, the UK merchant bank, will jointly be the satellite network's co-sponsors and advisers.

About 20 per cent of new equity in the company will be offered for sale and the hope is that sufficient funds will be generated to repay the pounds 1.2bn of outstanding shareholder debt. Analysts estimate BSkyB's market value could be up to pounds 5bn.

To the extent that the price is insufficient to repay the shareholder debt in full, bank debt will be raised to replace it. The exact capital struture will not be decided until the price is fixed.

After the share issue, existing holdings will be diluted and News Corp is expected to end up with 40 per cent. Pearson's holding will drop to 14 per cent and Granada's to 10.5 per cent.

However, Chargeurs intends to buy shares in the issue to keep its stake at about 17 per cent.

The flotation document is likely to involve a promise by the existing shareholders to hold their stakes for at least a year.

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