Britain may approve News Corp's $12.5 billion buy-out of BSkyB this week, two sources familiar with the situation said on Wednesday, forcing Rupert Murdoch's group to spin off TV news channel Sky News.
A spin off of Sky News is more likely than a sale, one of the people said. It is also possible that News Corp will keep a stake in Sky News similar to the current level of ownership it has in BSkyB.
The second person said several options were still being discussed around the structure of the deal.
The Financial Times reported in its Thursday edition that, in return for government approval, News Corp would spin off BSkyB's news operations while retaining a 39.1 percent stake in them.
Quoting people familiar with the agreement, it said the restructuring was accepted in principle by regulators and was expected to be announced on Thursday by Culture Secretary Jeremy Hunt.
News Corp agreed to provide a lump sum of several million pounds and guarantee 10 years of funding for the spun-off company, the FT said. Existing BSkyB shareholders will receive an equivalent stake in the new company, it added.
Murdoch wants to buy the 61 percent of BSkyB News Corp does not already own, raising concerns he could gain too much control over the media and influence over public opinion.
The saga has become politically charged, raising questions about the British government's relationship with Murdoch's powerful media empire and damaging a minister's career.
The BBC reported earlier that Hunt was likely to approve the deal, possibly as soon as tomorrow. In making his announcement, Hunt would launch a 15-day public consultation.
BSkyB declined comment and News Corp was not immediately available for comment.
Hunt's department said he had not yet taken a decision.
We will make an announcement in due course, a spokesman said.
OPPOSITION TO DEAL
An alliance of media groups opposed to the deal criticized the reported remedy to address the concerns of regulators.
If the purported remedy leaves Sky News dependent on News Corp for its money that will not be true independence ... We will oppose any unsatisfactory arrangement, and consider all legal avenues available to us, the group said in a statement.
On January 25, the British government gave News Corp a final chance to avoid a prolonged investigation into the buyout.
Hunt said then he would consider unspecified proposals put forward by News Corp to alleviate competition concerns before deciding whether to refer the proposed deal for a full, six-month competition inquiry.
Murdoch's media empire is under fire in Britain over the conduct of its journalists in a phone-hacking scandal.
The row has already cost the job of Andy Coulson, Prime Minister David Cameron's communications chief, who was the editor of top-selling Sunday tabloid the News of the World at the time, but who denies knowledge of wrongdoing at the newspaper.
Business Secretary Vince Cable, a member of the smaller Liberal Democrat party in the governing coalition, was stripped of power over the media sector in December after he was secretly taped saying he had declared war on Murdoch.
News Corp said in January it strongly disagreed with regulator Ofcom's conclusion that a referral was needed, but would work with the government to find a solution.
News Corp owns about a third of the newspaper market in Britain, including The Times and the country's best-selling tabloid The Sun, which both supported Cameron's Conservatives in last May's general election.
News Corp has offered to pay 700 pence per share for BSkyB, which dominates Britain's pay-TV market with 10 million customers due mainly to its sports and movie offerings, but Sky's independent directors are looking for above 800 pence.
BSkyB shares closed 6 pence higher at 799 pence as speculation had grown in recent weeks the government would announce a favorable ruling, putting pressure on News Corp to significantly increase its offer. News Corp shares were 1.9 percent higher at $17.36.
(Additional reporting by Rhys Jones, Kate Holton, Keith Weir, Adrian Croft; editing by Andre Grenon)