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Vivendi Opening Books

May 26, 2003  •  Post A Comment

Troubled French conglomerate Vivendi Universal is moving one step closer to selling its entertainment assets, preparing to let serious bidders begin the process of poring over the books of Vivendi Universal Entertainment starting the first week of June, people close to Vivendi and some of the bidders said.
While Vivendi has shown the books to many of these bidders already, a person close to the company said, the real due diligence is likely to get under way with even more vigor the week of June 2, with formal bids following sometime later. Citigroup and Goldman Sachs are providing advisory services to Vivendi.
A Vivendi spokeswoman declined to comment, other than to confirm that the company has received expressions of interest from a number of parties.
The move toward a more rigorous due diligence process comes as Vivendi Vice Chairman Edgar Bronfman Jr. surprised many with an eleventh-hour announcement that he was putting together a team of investors that would make a bid for all of VUE, which has under its umbrella the USA and Sci-Fi cable channels, Universal’s studio and theme parks business, a television production operation responsible for shows such as the Law & Order franchise, a 300-acre plot of land that has been valued at $800 million or more and the world’s largest music company, Universal Music Group. The entire business is valued at between $15 billion and $16 billion.
A spokesman for Mr. Bronfman said the investment team comprises three parts: a strategic partner, a provider of debt financing and a private equity component. So far, Mr. Bronfman has lined up the strategic partner in multiple system operator Cablevision Systems, and has committed investment banks Merrill Lynch and Wachovia Securities for the debt portion.
As part of the plan, Cablevision would contribute three cable channels, American Movie Classics, WE: Women’s Entertainment and Independent Film Channel, worth between $4 billion and $5 billion, in exchange for a 25 percent to 33 percent stake in a newly formed entertainment company run by Mr. Bronfman. Cablevision declined to comment beyond confirming it was working with Mr. Bronfman.
Merrill Lynch will provide advisory services for the debt financing portion of a deal. It is also possible Merrill Lynch will buy a stake in the new Bronfman company through its private equity unit. A Merrill Lynch spokeswoman did not return calls for comment.
Wachovia, meantime, has stepped up to provide debt financing, a Wachovia spokesman confirmed.
In addition, “a meaningful number” of private equity firms are lining up to participate as well, the Bronfman spokesman said.
While Mr. Bronfman’s move has been met with some skepticism, his spokesman maintained that his bid is for real. “He has what he needs to accomplish” the sale, he said.
If successful, Mr. Bronfman will have reclaimed assets he sold to Vivendi three years ago in an all-stock deal then valued at $34 billion. Since that sale Mr. Bronfman and his family have lost $3 billion as a result of the Vivendi acquisition. Bringing them back into the Bronfman fold could be a way for Mr. Bronfman to redeem himself for the ill-fated sale to Vivendi.
Mr. Bronfman becomes the second person to officially announce plans to bid on VUE. Late last year an investment team that includes oil billionaire Marvin Davis, Bain Capital, Texas Pacific Group and the Carlyle Group made a $20 billion offer for all of VUE, including the assumption of $5 billion of debt.
Liberty Media Chairman John Malone has also expressed interest in the VUE assets, saying earlier this month that VUE would be a nice complement to his cash-rich company’s array of businesses, including the Starz Encore Group, which could be another distribution channel for VUE’s film studio.
A person close to Vivendi said that Mr. Malone, along with USA Interactive CEO Barry Diller, has had several meetings with Vivendi executives in recent weeks, since USAI holds a 5.4 percent stake in VUE, and Liberty is the controlling shareholder in USAI.
It is unclear whether Mr. Diller would be participating in Liberty’s acquisition, given he stepped down as VUE’s chairman in March. However, Mr. Diller is a force to be reckoned with no matter who buys VUE; he has made clear in SEC filings that he could thwart any sale that doesn’t maximize USAI’s stake in VUE.
Other companies also have indicated they might consider buying pieces of VUE if they were for sale. A person within Viacom, for example, said that company might be interested in acquiring USA and Sci-Fi and combining them with Viacom’s other cable assets. Same goes for General Electric’s NBC unit, however GE Chairman Jeffrey Immelt has publicly said buying cable networks is a low priority for him at present.
Film studio MGM is also interested in pieces of VUE, seeing an opportunity to broaden its distribution with the cable assets and enhancing its film library. It owns a 20 percent stake in Rainbow Media, a subsidiary of Cablevision that owns the cable channels involved in Mr. Bronfman’s deal, although that stake doesn’t give MGM the power to influence Cablevision’s role in a Bronfman deal.
Even with the strong interest in several of the VUE parts, scenarios involving breaking up the entertainment business seem unlikely for a couple of reasons, people close to Vivendi said. First off, Vivendi Chairman and CEO Jean-Rene Fourtou has said publicly he is more keen on selling all of VUE at once rather than in pieces to speed up the process of generating cash.
Also, there is a massive tax bill looming over any deal that breaks up VUE into pieces. That payment, valued at between $700 million and $2.5 billion, would have to be paid to the Bronfman family if VUE is not sold whole, thanks to the tax-free status of the $34 billion all-stock deal that brought the Universal assets into the Vivendi fold in 2000. Given that Vivendi is struggling under a mountain of debt and is anxious to generate cash rather than spend it, Mr. Fourtou likely isn’t inclined to write the Bronfmans a check if he doesn’t have to.
People close to some bidders and within Vivendi say the tax issue isn’t a sticking point, because Vivendi seems more focused on selling all of VUE, which wouldn’t trigger the tax payment.