TORONTO (Reuters) - BCE Inc, Canada’s largest telecommunications company, will pay C$1.3 billion ($1.26 billion) for the country’s biggest private broadcaster, in a bold gamble on the future of video over the Internet.

George Cope, president and chief executive officer of BCE Inc., prepares for the company's annual general meeting in Montreal May 6, 2010. REUTERS/Christinne Muschi

The parent of Bell Canada said on Friday it would acquire the 85 percent of CTV that it does not already own in a deal that values the broadcaster at C$3.2 billion, including C$1.7 billion in debt.

CTV’s stable of video content, including the rights to the 2012 Olympics and the Discovery Channel, will help BCE attract subscribers to its new Internet and wireless video services.

Executives of BCE and CTV said the appeal of a combination became apparent to them during last winter’s Vancouver Games, where CTV was Canada’s host broadcaster.

“We truly were kids in a candy store at the Olympics,” BCE Chief Executive George Cope said at a conference call. “I remember coming back from Whistler to Vancouver watching the women’s hockey game all the way on a handset,” he added, referring to the venue where the Alpine events were held.

Cope, who shook up management after a failed leveraged buyout in 2007, has cut costs and shifted BCE’s focus from landlines to satellite TV, mobile and Internet.

With the CTV deal, BCE is following an international shift within the industry. Forced to adapt to emerging technologies, carriers, media and cable companies are moving into each other’s traditional domains, hoping to find new revenue streams.

BCE is buying the equity stake from the Woodbridge Co. Ltd, the Toronto-based holding company of the Thomson family; Ontario Teachers Pension Plan; and Torstar Corp, the publisher of the Toronto Star newspaper. Torstar shares jumped 20 percent on the news.

In a related transaction, Woodbridge will regain control of Canada’s Globe and Mail, taking 85 percent of the newspaper while Bell retains 15 percent. Woodbridge also owns a majority of Thomson Reuters Corp.

BACK TO THE FUTURE

The CTV acquisition, which includes Canada’s No. 1 television network with 27 stations as well as 30 specialty channels, would reverse BCE’s decade-long unwinding of its controlling stake of the broadcaster.

“It is a way of gaining insurance on the future direction of both the usage of content and the economics thereof,” said Greg Macdonald, director in equity research at National Bank in Toronto.

“If usage changes, economics potentially change,” he said. “We know the economics of conventional television and of specialty television, but we don’t know the economics of ‘on demand’.”

The deal, which requires regulatory approval, illustrates just how closely content and carriage are interwoven in Canada.

It comes months after cable provider Shaw Communications Inc agreed to buy the television operations of Canwest Global Communications for C$1.2 billion.

Earlier this week, Videotron, the cable arm of media group Quebecor, launched a 3G wireless service in the French-speaking province of Quebec.

“There’s a craze in terms of convergence which reminds me of yesteryear without any real clear evidence that it adds any value,” said Dvai Ghose, an analyst with Canaccord Genuity in Toronto.

Should the deal go through, it would mark the second time that BCE has taken control of CTV. A decade ago it paid C$2.3 billion for what was already the country’s biggest privately held broadcaster, but after a change in management, that strategy was reversed.

FRESH DIRECTIONS

BCE itself came close to being acquired in 2007 by a consortium led by Ontario Teachers in a proposed leverage buyout valued at more than C$50 billion.

Soon after the LBO fell apart, BCE named Cope as chief executive with a mandate to push the company in fresh directions.

“Our acquisition of CTV more than levels the playing field in our increasingly competitive industry,” Cope said on Friday.

Funding will come from a bank facility of C$2 billion, C$750 million of new BCE common shares issued to Woodbridge, and surplus cash on hand, BCE said.

Shares of BCE ended up 0.43 percent at C$32.99 on the Toronto Stock Exchange, while shares of Torstar closed more than 20 percent higher at C$12.