UPDATE: Canal Plus Buys 60% Of Bollore Group's TV Business

French pay-TV group Canal Plus SA (AN.FR) said Thursday it is looking to buy a majority stake in competitor Bollore SA's (BOL.FR) free-to-air-television business, as the French TV market continues to consolidate in the face of growing online competition.

Canal Plus, a unit of entertainment and telecommunications conglomerate Vivendi SA (VIVEF, VIV.FR), will take a 60% stake in Bollore's television business, which includes French channels Direct 8 and Direct Star, the two companies said in a joint statement. Bollore's TV arm is worth a total of EUR465 million, according to the statement.

Bollore will be paid in Vivendi shares and hand over management and control of the two channels to Canal Plus. Bollore will hold the remaining 40% in its TV business for three years, when it can trigger an option to sell to Canal Plus.

The deal offers Canal Plus the opportunity to bulk up ahead of the arrival of online pay-on-demand competitors. "This partnership is intended to prepare the Canal Plus Group for the arrival in the television sector of new operators such as Apple, Netflix, Google," Canal Plus Chairman Bertrand Meheut said in a statement.

It also gives the group a gateway to access ads broadcast on free-to-air channels. Canal Plus, which also creates movies and TV series, is primarily available on subscription. It can now use its content to lure viewers and ad dollars away from free-to-air competitors including TF1 and M6, analysts said.

Earlier this year, Meheut said he wanted to launch a free-to-air channel. However, the plan hung on the French government awarding two free "bonus channels" to M6 and TF1 to compensate for the move from analogue to digital TV. The plan was challenged by European Union regulators, who saw it as a potential violation of competition rules. As a result, Meheut's initial plan could have been bogged down for some time by regulatory wrangling.

For Bollore, a conglomerate whose interests include shipping and electric car batteries, the deal allows it to lower its exposure to the French TV market and take a 1.4% stake in Vivendi, said Yannick Bollore, who heads the group's media divisions.

"In the future, what will define success is content," Bollore said. "It's very hard to access content unless you are backed by a large group with deep pockets."

Some analysts said Bollore had done well to extract such a high price from Canal Plus for their two channels, which have around 4% of the French TV audience. "It seems like an expensive deal for Canal Plus," said Conor O'Shea, an analyst at Kepler Capital Markets. "For Bollore, it works out well because it seemed that their television strategy wasn't heading anywhere fast."

-By Max Colchester and Noemie Bisserbe, Dow Jones Newswires; [phone]; [e-mail]