* Deal expected to be announced on Friday-source
* BSkyB to buy Sky Italia and 57 pct of Sky Deutschland
* Sale by Murdoch’s Fox comes as he looks to expand in U.S.
By Kate Holton
LONDON, July 24 (Reuters) - Britain’s pay-TV group BSkyB will on Friday unveil its multi-billion euro deal to buy Rupert Murdoch’s assets in Italy and Germany, sealing a plan to create a pan-European giant with almost 20 million customers.
A person familiar with the situation said the terms of the deal, first announced in May, were due to be disclosed at 0600 GMT on Friday, when the London-listed firm publishes its full-year results.
Under the proposal BSkyB, 39 percent-owned by Murdoch, will buy all of Sky Italia and 57 percent of Sky Deutschland from Murdoch’s 21st Century Fox, which is looking to raise cash to buy Time Warner.
A deal, which analysts expect to cost between 7 and 9 billion euros, would enable BSkyB to expand beyond its existing 10 million homes in Britain and Ireland, and move into Germany, Austria and Italy, where pay-TV is not yet as profitable or popular.
The 25-year-old BSkyB built its business around the offer of premium sports but it has also become known for its technological innovation, such as the award-winning Sky+ set-top box, streaming TV app and Europe’s first 3D channel.
Taking this approach to its new assets could help to grow revenues while costs could be saved on joint procurement for technology, capital allocation and the co-production of programming.
Two people familiar with the deal have said the potential synergies could be higher than most analysts have realised.
“We think the market may have underestimated the upside from a deal (increased scale/cost synergies/revenue synergies) and be wary of a significant rights issue to fund the deal, that we think is unlikely,” UBS said in a note to clients.
Under German takeover law, BSkyB will have to make an offer for the rest of Sky Deutschland but the fact the company said in May it did not expect to offer a premium for those shares indicates it would be happy with just the controlling stake.
But the move is not without its problems and it could take a while for the benefits of creating a so-called Sky Europe to pay off.
Sky Italia, Italy’s biggest pay-TV operator, has lost 220,000 customers since its peak in 2011 as the prolonged economic downturn has forced more people to ditch their monthly TV packages.
In Germany, Sky Deutschland is growing strongly in terms of customer additions and revenue, helped by the appeal of its domestic and European soccer matches, but the percentage of those willing to pay for TV in Germany remains low - below 20 percent.
Of concern for some analysts is that they suspect Murdoch is the driving force behind the deal - and that it would suit him more than Sky investors - since it would give Fox billions of euros in cash at a time when the 83-year old mogul is looking to expand in content.
But BSkyB’s management team, including Chief Executive Jeremy Darroch, won the respect of the independent investors for their conduct when Murdoch sought and failed to buy the rest of BSkyB in 2011.
Also of concern is the fact that if BSkyB seeks to pay for the deal in cash and debt, without issuing shares, its net debt to core earnings could rise to more than three times its core earnings from the current level of around one, possibly hampering the group at the next auction to buy rights.
Its ability to buy the best programming has been thrown into doubt for the first time in recent years due to the arrival of telecoms group BT in its sector, and the next round for the key English Premier League rights are set to kick off later this year.
BSkyB and Fox declined to comment on the talks. (Editing by William Hardy)