NTL, Britain’s biggest cable company, has finally announced the $6 billion (£3.4 billion) cash and shares purchase of its smaller rival Telewest, creating a business with the size to challenge BT and BSkyB.

Under the terms of the deal, which has been in the works for some months, Simon Duffy, the head of NTL, takes the top job as president and chief executive of the combined company. Barry Elson, Telewest's lower profile acting chief executive, finds himself without a position and will leave once the takeover is complete.

James Mooney, NTL's chairman, takes charge of an enlarged board that features just two directors from Telewest. Anthony Stenham, the chairman of Telewest, will become deputy chairman of the new group.

As the two firms unveiled the terms of today's agreed merger, Mr Duffy signalled his desire to be a major new force in the communications sector, particularly in the area of pay-TV.

He said: "This is a transforming transaction for the UK cable industry. It marks not just the culmination of a decade of consolidation but, more importantly, the creation of a new competitive force in the communications and entertainment sectors in the UK."

The combined NTL Telewest is likely to go head to head with BSkyB, the satellite broadcaster that is currently the dominant provider of pay-TV services in the UK. BSkyB is 36.8 per cent owned by News Corporation, parent company of The Times and Times Online.

The combined cable company will have nearly 5 million customers and it will be the only significant business to be able to provide broadband, telephony, and pay-television in a single package.

Based on unaudited figures for the 12 months to the end of June, the combined company would have had revenues of £3.4 billion and operating profits of £1.2 billion.

Net of costs, NTL and Telewest believe they can create merger savings of £1.5 billion.

Under today's agreed deal, NTL is offering Telewest shareholders $16.25 in cash plus 0.1115 NTL shares - for a total consideration worth $23.93 per share. The offer represents a small premium to the $22.95 closing price of Telewest shares last week.

While NTL is the larger company by turnover, the two are almost identically valued at between $5.5 billion and $5.6billion. Both companies are listed on Nasdaq.

Bringing the two together ends a tortuous journey of uniting Britain’s weak and fragmented cable industry.

However uncertainty remains as to whether Telewest is still selling Flextech, its television arm. Documents being prepared ahead of the merger announcement suggested that NTL wants to retain strategic control of Flextech.

Telewest made no statement about the Flextech sale this morning.

Some bidders for Flextech — which is valued at more than £1 billion — claimed to have had assurances that the sale process would continue.

Some NTL and Telewest investors are also thought to be demanding that the auction, which is being handled by Deutsche Bank, continues.

Those still interested in bidding for Flextech are BSkyB, RTL, the owner of Five, Discovery Communications, which is partly backed by John Malone, and the American media giants Viacom and Time Warner.

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