Vivendi Universal tangles with odd set of obstacles

Dec 16, 2002  •  Post A Comment

Just when you thought things could not get worse or more weird, Vivendi Universal finds itself wrestling with what even the French consider bizarre obstacles to settling its future.
The latest developments throw into question whether the Vivendi Universal Entertainment assets, assembled just about a year ago, will remain intact to become a publicly traded entity led by Hollywood magnate Barry Diller.
Mr. Diller, who was a no show at two major media conferences in New York last week headlined by many of his peers, is immersed in year-end cost-cutting and review at VUE and in a $620 million tax dispute between corporate parent Vivendi and his USA Interactive, which is a 5.4 percent shareholder in VUE.
Vivendi Universal officials have said they would like to revise the complex agreement made when Mr. Diller sold the company his cable and other entertainment assets for $11 billion and the right for USA to block the sale of VUE assets for 15 years unless it is paid an additional $2 billion, or the value of its stake in the company.
Vivendi Universal CEO Jean-Rene Fourtou was in the United States last week reviewing the options for the company’s entertainment assets when Mr. Diller announced a restructuring of his USA Interactive.
USA Vice Chairman Victor Kaufman, appearing at UBS Warburg’s annual media gathering, said, “USA is not going to re-enter the entertainment business. We’re not going to buy Vivendi Universal’s entertainment assets and we’re not going to put more money into those assets.”
However, Liberty Media Corp. President Robert Bennett, appearing at the same conference, made clear his company’s intention to buy all or a controlling stake in the VUE assets, which, if spun off, could be aligned with Liberty’s 100 percent-owned Starz Encore! pay service or even other major entities such as DreamWorks.
Liberty has said it supports Mr. Diller’s dual role as chief executive of both VUE and USA Interactive. Mr. Diller has said publicly he does not want to oversee the daily operations of a major entertainment company and prefers the business dynamics represented by his interactive businesses at USA (including Ticketmaster, Expedia and Home Shopping Network), although he still is lured by VUE’s show business interests. Yahoo! CEO and former studio executive Terry Semel has been mentioned as a possible candidate to run VUE if Mr. Diller steps down.
Mr. Diller recently defended his often-questioned dual role on CNBC’s “Kudlow & Cramer,” saying that as long as USA Interactive has an equity interest in VUE, “It is perfectly reasonable for us to have some role-though not, of course, a majority role-in terms of what happens to those assets.”
Relations between Mr. Diller and Vivendi Universal executives have been strained by a number of other incidents, including an unsolicited $20 billion offer from Texas oilman Marvin Davis, which will be reviewed next month and which, essentially, has put the VUE assets in play. Edgar Bronfman, whose family has lost more than $5 billion in value from the depreciating Vivendi stock they took when they sold their Universal Studios and Seagram beverage business to Vivendi, also has talked about resuming a bigger role in managing the entertainment assets.
The private sale of VUE would hamper the chances of Mr. Diller, USA and Liberty benefiting from a public offering and potential expansion of the assets. Mr. Diller also has a personal 1.5 percent stake in VUE, which could be expanded based on the current talks, sources said.
As if all this weren’t complicated enough, last week French authorities raided Vivendi’s Paris headquarters and the home of its former CEO Jean-Marie Messier as part of an investigation into the accounting and other financial practices under his administration. The raids quickly scuttled meetings Mr. Messier had scheduled last week with press in Paris to discuss his new book, among other things.
Just where these tumultuous events leave Mr. Diller and VUE is unclear.
Clearly, Vivendi is anxious to sell the assets it can even as it negotiates to expand its ownership in non-media businesses in Europe. Last week, in the wake of the collapsed merger plans of EchoStar and domestic satellite rival DirecTV, Vivendi appeared willing to sell the 11 percent stake it acquired in EchoStar for $1.5 billion a year ago, but would do so at a significant loss.
Liberty is anxious to scoop up the USA and Sci-Fri cable channels held by VUE, which, along with Studios USA, represented a large part of Mr. Diller’s $11 billion sale to Vivendi.
In the past, analysts have valued Universal Studios and the cable networks at nearly $17 billion, Universal Music at about $10 billion and the Universal theme parks at about $1.6 billion. Vivendi Universal’s media and communications operations are expected to generate $63 billion in earnings before interest, taxes, depreciation and amortization on $32 billion in revenues this year.