Dec. 12 (Bloomberg) -- Shares of Vivendi Universal SA, which controls French broadcaster Canal Plus, and Societe Television Francaise 1 jumped after the companies said they began talks about combining their pay-television units.

TF1 shares surged as much 9.6 percent to 24.27 euros and traded at 24.04 euros as of 11:05 a.m. in Paris. Vivendi shares gained as much as 4.3 percent to 26.20 euros and traded at 25.99 euros as of 11:06 a.m.

Vivendi's Canal Plus and Television Par Satellite, known as TPS and owned by TF1 and M6-Metropole Television, have fought for TV spectators' favor, raising marketing spending and outbidding each other for the rights to content such as soccer matches. Paris-based Vivendi, whose Canal Plus operates France's largest pay-TV company, said yesterday it began talks with TF1 and M6 about a possible combination of Canal Plus Group and TPS.

``Profitability has been penalized by this war,'' said Salah Seddik, a fund manager at Richelieu Finance in Paris, which oversees the equivalent of $4.7 billion including shares of M6, TF1 and Vivendi. ``It's a combination that makes sense. It will be a winning situation for all of the media actors.''

Vivendi has advocated a merger between the pay-TV businesses, saying there's no room in France for two competitors. TF1 Chief Executive Patrick Le Lay has resisted, saying TPS can survive on its own.

Vivendi owns 49 percent of publicly traded Canal Plus SA through its Canal Plus Group unit. TF1 owns 66 percent of TPS, with the remainder held by M6.

Media Shares Gain

Shares of M6 rose as much as 9.7 percent to 25.07 euros, and traded at 24.17 as of 11:06 a.m. Canal Plus SA shares rose as much as 3.7 percent, while shares of Bouygues SA, which owns about 42 percent of TF1, gained as much as 3.3 percent. Shares of Lagardere rose as much as 3.4 percent to 65.70 euros.

The companies may merge Canal Plus and TPS, taking smaller stakes in the combined company, or Vivendi could acquire TPS, Richelieu's Seddik said.

Based on current valuations and ownership, a merged company might be 45 percent owned by Canal Plus, while TF1 would own 21 percent and M6 11 percent, CM-CIC Securities' analysts Eric Ravary and Vincent Griffon said in a note to investors. Lagardere SCA would own 23 percent, the analysts said.

Lagardere, the publisher of Elle magazine, is in talks with Vivendi to swap its 34 percent stake in Canal Satellite, the pay- TV unit of Canal Plus Group, for a similar stake in Canal Plus.

Not `Economically Viable'

After Canal Plus outbid TF1 for the rights to broadcast France's top soccer league a year ago, Canal Plus Chief Executive Bertrand Meheut said two digital television channels in France weren't ``economically viable.'' Canal Plus agreed to pay 600 million euros a season for the soccer broadcast rights, almost doubling TPS' 327.5 million-euro bid.

Canal Plus added to its soccer rights in August, winning the exclusive broadcasts of the Champions League European soccer competition until 2009. The company didn't say how much it paid European football organization UEFA for the rights.

``Vivendi Universal has the upper hand in negotiations, as TF1 looks to have been forced into talks given the pressure stemming from Canal Plus's successful bid for football rights,'' Ravary and Griffon at CM-CIC Securities said in the note.

Profitable Business

The pay-television business is profitable for Vivendi. The company said last month profit from operations at Canal Plus Group rose 1 percent to 97 million euros in the third quarter, beating analysts' expectations. Higher revenue per customer for the French pay-TV business and an expanded offering made up for higher marketing costs.

Canal Plus and TPS both face competition from television offerings via the Internet by companies including France Telecom SA and Internet service providers Iliad SA's Free and Neuf Cegetel. Television via the Internet, or IPTV, will account for 17 percent of the French pay-TV market by 2009, market researcher Screen Digest said in a report in November.

``The main appeal of a prospective merger between CanalSat and TPS would obviously be its potential to ease competition for sporting and film rights, against the backdrop of heightened competition from telecom operators and ISPs on access to content,'' Ravary and Griffon said.

To contact the reporter on this story:
Rudy Ruitenberg in Paris at  rruitenberg@bloomberg.net.