Universal’s U.S. Point Man

May 5, 2003  •  Post A Comment

Now that Vivendi Universal SA Chairman and CEO Jean-Rene Fourtou has admitted he plans to sell the French conglomerate’s film, television and theme park assets by the end of the year, conventional wisdom has all eyes focused on Barry Diller, whose approval could be essential for Mr. Fourtou to fulfill his goal.
But some observers believe it is Edgar Bronfman Jr. who will be the key player in any discussions with suitors interested in the Vivendi Universal Entertainment (VUE) assets. Those assets include TV production operations for shows such as the Law & Order series, cable TV channels USA and Sci-Fi, Universal Music Group and 300 acres in Los Angeles that could be worth $800 million or more.
Clearly, as vice chairman of the Paris-based company, Mr. Bronfman wields a significant amount of influence. Ditto as the de facto point man for the Bronfman family, which collectively owns a majority stake in Vivendi. They’ve lost roughly $3 billion since the 2000 merger that created Vivendi Universal, and are said to be hopping mad about it. Sources have said that Mr. Bronfman, who pushed for the merger, could use a sale of VUE’s assets at top prices as a way to redeem himself for the losses suffered by the family.
Another reason Mr. Bronfman’s stock might be high within the company: He is perceived within Vivendi as the one person with real knowledge of the entertainment industry. That is supported by people familiar with the company who say that Mr. Fourtou has grown increasingly reliant on Mr. Bronfman for all issues related to the entertainment assets. And that reliance is likely to increase as Vivendi entertains offers. The irony is that for most of his time in Hollywood, Mr. Bronfman was perceived as an outsider.
Mr. Fourtou very publicly praised Mr. Bronfman at last week’s Vivendi annual meeting in Paris. “I want to pay tribute to his loyalty to the company and to his availability when we had to deal with issues related to the North American activities,” he said through an interpreter. Furthermore, Mr. Fourtou has acknowledged that it is impossible for him to have any meaningful control over VUE with his offices based in Paris-making Bronfman point man in the United States.
Then there’s the practical matter of money: As part of the merger agreement that created VUE, the Bronfmans are entitled to a sizable payment to cover any tax consequences that arise as a result of splitting up VUE. That figure is said to be as high as $2.5 billion, but people close to the company suggest the actual figure might be in the $700 million to $900 million range, given the devaluation of the entertainment assets over the past couple of years. Either way, it would be a considerable sum for the cash-strapped Vivendi to have to pay, particularly as the company tries to recover from the mess left by ousted CEO Jean-Marie Messier.
“[Mr. Bronfman] has quite a lot more influence than many investors think,” said one Wall Street analyst, who added, “He has the backing of his entire family.”
One of those already in behind-the-scenes conversations with Mr. Bronfman, according to sources, is MGM, which is itching for a domestic TV distribution mechanism and wants the film library. The company controlled by billionaire Kirk Kerkorian has emerged as a leading bidder for key entertainment assets. Under a rapidly emerging scenario, Universal’s networks and film and TV studios would merge with MGM under a deal that would not trigger the tax obligation to Diller’s USA Interactive, according to sources. If that happened, much of the property in Universal City could be sold off to developers to boost the amount recouped by the French. That deal would also likely not include the Universal music business, which could be spun off and sold separately later when the market improves.
The groundwork for that kind of sweeping change is being laid in talks to sell off the Universal Studios theme parks separately to a group led by the privately held Blackstone Group. That reported $1.5 billion deal would also include two theme parks in Orlando (already half owned by Blackstone) and interests in parks in Japan and Spain.
The sale of the theme parks would not interfere with an MGM merger with Universal, but would effectively take off the table an earlier bid by billionaire Marvin Davis. The former owner of 20th Century Fox has put together a group of private equity players who have offered $20 billion for all of VUE, including the parks, music business, the land plot and French pay-TV company Canal Plus.
There are other players still looking at VUE, but most have a more limited interest. Among the names mentioned: Viacom Inc., which sources say is primarily interested in the cable channels; John Malone’s Liberty Media Corp., which to this point has only taken minor stakes in entertainment assets but is sitting on a pile of cash; Mr. Diller’s USA Interactive, although he has made clear he is more interested in Internet properties than film and TV; and General Electric Co.’s NBC, which could potentially benefit from the cable properties but is said to be hesitant to take on the Universal Studios.
Viacom could certainly give it a go, but people close to the company say Viacom officials are disinclined to take on debt-let alone another film studio or even a music company. Furthermore, USA and Sci-Fi, while being nice fits in a company that already owns MTV Networks and Showtime, aren’t deemed essential. NBC could probably put together a deal as well, but GE Chairman Jeffrey Immelt has publicly said such a deal is low on his list of priorities.
Because of the potential tax payments that would go to Mr. Diller and to the Bronfmans if VUE’s assets were split, sources say it is less likely that Mr. Fourtou would be interested in selling off the pieces. What is likelier, then, is for Vivendi to sell off a big chunk of its 93 percent stake in VUE, perhaps retaining a 25 percent share to avoid the taxman. “I think there’s a 50-50 chance financial buyers will come in,” the analyst said. “They can exit through a stock listing when [VUE’s] financial position improves and the market improves.”
Mr. Bronfman did not return phone calls seeking comment. A Vivendi spokeswoman declined to comment, saying that Mr. Fourtou’s comments stood on their own. Mr. Kerkorian doesn’t talk to the press. MGM, Viacom, NBC and USA Interactive had no comment. A spokesman for Liberty confirmed that the company is interested in some of VUE’s assets, but declined to say whether a bid is imminent.
While Mr. Bronfman has the ear of the French, Mr. Diller, who is chairman and CEO of USA Interactive Inc. and who was chairman of VUE until March, has not been marginalized. Indeed, with a 5.4 percent stake in VUE, he has a role to play in how VUE’s assets are parceled out. And he has said as much, letting all who are interested in the VUE assets know that he will thwart any deal that doesn’t maximize his stake’s value.
Mr. Diller has another ace: A lawsuit he filed last month alleged that Vivendi is on the hook for the $620 million tax payment that must be paid if VUE is sold outright.
Mr. Fourtou says Mr. Diller’s suit represents a misinterpretation of the contract that combined USA’s television assets with VUE, but adds that the suit has in no way compromised his relationship with Mr. Diller, with whom he says he is on “excellent terms.” Mr. Fourtou added: “I am convinced this is a tax matter. We shall go to the courts to find out who is right.”
Mr. Diller said Thursday during a conference call: “Vivendi will be paying the taxes and this will be resolved in the fairly near term.”
The one thing made clear last week was that Vivendi needs cash sooner rather than later if Mr. Fourtou is to make good on his promise of selling e7 billion ($7.8 billion) in assets to further pay down debt in 2003.
Alex Ben Block contributed to this report.