This is taken from the Financial Times:

BBC and Channel 4 in talks over UKTV stake
By Emiko Terazono,Media Correspondent
Published: June 1 2005 03:00

The BBC is understood to be in discussions with Channel 4 over acquiring a 50 per cent stake in UKTV, which is currently owned by Flextech, the contents business of UK cable operator Telewest.

Telewest has appointed Deutsche Bank to sell Flextech ahead of merger talks with NTL, its rival cable operator, although it is believed to also be considering a flotation as an option.

Until recently, Telewest has insisted that the content business was integral to its cable operations.

Flextech currently consists of UKTV, a 50-50 joint venture with the BBC, and other digital channels including Living TV. Earlier this month Telewest also took full ownership of SitUp TV, which owns television shopping channels, by buying the remaining 50 per cent it did not own for £97.5m.

NTL is understood to have insisted that Telewest place a firm valuation on Flextech before they enter discussions, as it would affect the structure of any deal - and crucially whether any merger would be classed as a takeover by either company of the other.

In addition, Simon Duffy, chief executive of NTL, believes that cable and content businesses do not belong under one roof.

If Flextech is sold, a change-of-control clause gives the BBC the right to acquire the 50 per cent of UKTV it does not own at a market rate. The BBC is looking for a partner that can supply UKTV with more programme rights, more channels and the ability to cross-promote the channel.

The BBC was in discussions with other broadcasters including ITV and RTL of Germany, which owns Channel Five, about a possible UKTV partnership at the end of last year, but Telewest then had indicated that it was not a seller of its contents business.

Andy Duncan, chief executive at C4, which is publicly owned but funds itself through advertising, said earlier this month that it wanted more co-operation with the BBC. He also said the broadcaster was looking to make acquisitions with the £188m on its balance sheet.

But bankers say any deal between the BBC and C4 faces serious challenges, due to the size of the potential acquisition, though other suitors may emerge.

Other hurdles between a deal with C4 and the BBC include the small number of rights the broadcaster owns, and its ability to acquire further secondary programme rights due to the change in legislation in 2003, while valuation of Flextech and UKTV is also an issue.

The valuation for Flextech has ranged between £450m to £1bn with the bulk of the asset value attributed to UKTV