Time Warner to Buy 10% of CanalSatellite

Canal Plus said Time Warner Inc. will buy a 10% stake in its direct-to-home satellite television service, CanalSatellite, solidifying its relationship with the U.S.’s No. 1 media company.

Time Warner will acquire the stake through its Warner Bros. studio, which will buy new shares in CanalSatellite through a capital increase, Canal Plus Chief Executive Pierre Lescure said in a newspaper interview. Terms of the capital increase haven’t been completed. As part of a film rights agreement, the U.S. film producer had an option until the end of the year to buy the stake, giving it a strong foothold in Europe.

Canal Plus, Europe’s biggest pay TV company, has been negotiating for more than a year to get Time Warner to buy a stake in CanalSatellite to shore up their relationship in the face of stiff competition from French rival Television Par Satellite. The equity stake could also be used as a springboard for a wider alliance between the two companies, analysts said, an idea occasionally floated by Lescure.

“It’s always helpful to have a U.S. studio in your capital, although it will dilute Canal Plus’ stake,” said Normand Allaire, an analyst at ABN Amro Hoare Govett.

Analysts have valued CanalSatellite to be at least $862 million. CanalSatellite’s other shareholders include Pathe, with 20%, and Generale des Eaux, with 10%.

Time Warner shares rose 88 cents to close at $60.69 on the New York Stock Exchange; American depositary receipts of Canal Plus rose 25 cents to close at $34.25 in over-the-counter trading.