Britain's BSkyB has agreed to pay £4.9bn in cash to buy Rupert Murdoch's pay-TV assets in Germany and Italy, responding to slowing growth at home by creating a European media giant.

BSkyB, in which Murdoch's 21st Century Fox is also the top shareholder, will pay for the deal using cash, debt and a placing of shares that represents around 10% of its issued share capital.

21st Century Fox is expected to use the proceeds from its partial exit from Europe to fuel its pursuit in the United States of Time Warner, which recently rejected Fox's initial $80bn bid.

Fox owns 100% of Sky Italia, 57% of Sky Deutschland and 39% of BSkyB.

Facing the toughest market conditions in its 25-year history, BSkyB has decided that its future growth lies in creating a European pay-TV leader.

BSkyB said it would pay £2.45bn for Sky Italia and £2.9bn for Fox's 57% stake in Sky Deutschland to create a group with nearly 20 million customers.

The payment to Fox for Sky Italia will be made up of cash and BSkyB's stake in the National Geographic Channel.

Shares in BSkyB opened about 3.6% lower as shareholders digested the impact of the share placing.

The 25-year-old BSkyB, has grown to dominate the British pay-TV market, drawing more than 10 million homes with its programming including sports, movies and US drama.

It now hopes to apply those lessons to Italy and Germany, where pay-TV is not yet as popular or profitable.

BSkyB is also betting that it will be able to squeeze out costs on everything from set-top boxes to broadcasting rights via the expansion. 

It said it aims to reap 200 million pounds of annual cost savings by the end of the second financial year after the deal is completed, and pledged further savings later.

The deal requires BSkyB and its shareholders to make sacrifices, however.

BSkyB said it expected its credit rating to be downgraded after the deal.

It pledged to bring its debt ratio back down "in the medium-term" to two times earnings before interest, tax, debt, and amortisation. 

As a result, the group said it would not resume share buybacks or do any further acquisitions until its leverage target was achieved.

Macquarie analyst Guy Peddy said the price was in line with expectations, and therefore comforting.

"The interesting thing longer term is the indebtedness is three times net debt to EBITDA, which is quite a high level for a media company," he said.

Under German takeover law, BSkyB will have to make an offer for the rest of Sky Deutschland. The offer will be at €6.75 per share, compared to the €6.66 Sky Deutschland closed at yesterday.

CFO Andrew Griffith told reporters the group's net debt to core earnings would be below three times if the German minorities do not take up the offer, and that it would be around four times if the German minorities did take up the offer.