Sky has announced a long awaited £1.6bn deal to buy ITV’s broadcasting and streaming arm to create the UK’s biggest commercial broadcaster.

Sky, which is owned by the US telecoms company Comcast, will pay £1.2bn in cash initially for ITV’s media and entertainment business, which include its free-to-air TV channels in the UK and ITVX streaming platform. It has agreed to pay a further potential £200m in the second half of 2028, depending on 2027 advertising revenues.

Sky hopes the deal will help it compete for viewers with US streaming platforms including Netflix, YouTube and Amazon Prime Video.

As part of the transaction, Comcast will sell its Love Productions business, which makes The Great British Bake Off and The Piano, to ITV for £200m.

Sky and ITV had been in talks for months to hammer out the complicated deal.

It does not include the programme-making arm ITV Studios, one of the world’s biggest production companies, which has made shows including I’m a Celebrity… and the hit drama Mr Bates vs the Post Office. ITV Studios will remain as a stand-alone company listed on the London Stock Exchange.

Sky has committed to spending at least £2.1bn between 2028 and 2032 on the studios business as part of a long-term strategic partnership, safeguarding the future of popular programmes such as Coronation Street and Love Island.

The board expects to return £950m to ITV shareholders after completion of the deal, and a further £65m will be put into escrow for the benefit of the ITV pension scheme.

Dana Strong, Sky’s chief executive, described it as a “defining moment for British media and an opportunity to build a stronger future for two of the UK’s most loved and trusted brands”.

She added: “We have huge respect for the transformation the ITV team has delivered, particularly its successful move into streaming through ITVX, which has brought fantastic British content to millions of viewers across the UK.”

Andrew Cosslett, ITV’s chair, said: “For over seven decades, ITV has played an important and cherished role in the public life of the nation.

“At a time of rapid change in the industry, it is right that we now secure ITV’s crucial role as a public service broadcaster and this transaction achieves this with ITV’s media and entertainment division combining with Sky to create a UK champion with the scale and resources to better compete with global streaming platforms.”

Sky has agreed to pay a break fee of £80m if the deal does not get regulatory approval. ITV, for its part, would have to pay a break fee £11.5m if it does not get the nod from regulators for its acquisition of Love Productions.

Analysts have predicted that Sky’s proposed takeover of ITV’s broadcast and streaming division would result in heavy job losses at ITV to remove duplication.

The takeover deal is expected to attract scrutiny from the UK’s Competition and Markets Authority and the telecoms regulator, Ofcom.

Ofcom is likely to examine concerns about the owner of Sky News taking half of ITV’s 40% stake in ITN, the production company behind ITV News, Channel 4 News and 5 News.

Last week, Comcast said it will spin off its media operation, which includes Sky and the Hollywood film studio, TV and theme park business NBCUniversal, into a separate publicly listed company.

The move comes eight years after the US group, which said the separation will take a year to complete, acquired Sky’s European operations for £31bn.