Liberty Not Free to Bid on VUE

Jun 16, 2003  •  Post A Comment

As Edgar Bronfman Jr. and his family gain momentum in their bid to buy the U.S. entertainment assets of Vivendi Universal, the possibility that John Malone could emerge as a last-minute bidder has become highly unlikely, since he might be hindered by a contractual clause that has not been publicized.
Mr. Malone’s Liberty Media is subject to a standstill obligation that is strikingly similar to the one Vivendi officials last week revealed applied to Barry Diller. Mr. Diller’s USA Interactive purchased more than 28 million Vivendi warrants for $407 million.
Mr. Diller recently received what has been described by sources as a “very tough letter” from a highly respected hard-nosed Los Angeles litigator hired by Vivendi Universal specifically to clear the way for the company to sell the entertainment properties and raise some much-needed cash. It reminded Mr. Diller of a 2001 contract clause prohibiting him from acquiring Vivendi Universal or any of its subsidiaries. The clause was part of Mr. Diller’s sale of USA Networks to Vivendi.
Liberty faces a similar prohibition in connection with the USA Networks sale, according to a filing with the Securities and Exchange Commission. That sale involved Liberty’s trading a large part of its 21 percent stake in USA Networks for a stake in Vivendi. And while Vivendi officials have not publicly reminded Mr. Malone or Liberty of that obligation, Vivendi insiders said there is no indication Vivendi has or is inclined to waive it.
A Vivendi spokeswoman declined to comment. A Liberty spokesman was unavailable.
The attorney hired by the beleaguered French conglomerate is Dale Kinsella, a partner in the Los Angeles firm of Greenberg Glusker Fields Claman Machtinger & Kinsell. He will handle any litigation associated with the sale. He may also be involved in efforts to go after former executives to recoup the company’s huge losses.
Mr. Kinsella is familiar with Vivendi’s assets, having worked for Universal Studios and MCA Music on copyright infringement cases. He also represented actors George Wendt and John Ratzenberger in a high-profile invasion of privacy case against Host International.
Vivendi chose Mr. Kinsella as its litigator because he “is astute in these areas” and because Vivendi’s management “was disgusted with how Barry Diller handled the situation,” said a person close to the company.
Liberty also has a lawsuit pending against Vivendi, charging that former management deceived Liberty about its financial health at the time of the USA Networks deal.
Mr. Kinsella declined to comment, as did a spokesman for USA Interactive.
Line in the Sand
Having placed Mr. Kinsella in its arsenal, it is clear that Vivendi is drawing a line in the sand with regard to the sale of the entertainment assets, which Chairman and CEO Jean-Rene Fourtou has made clear the company no longer wants to manage. VUE hopes to raise $20 billion or more to reduce its huge debt.
Meanwhile, a person familiar with the situation said the U.S. Attorney’s Office for the Southern District of New York continues to look into the business practices of Vivendi under deposed Chairman and CEO Jean-Marie Messier and could be close to empaneling a grand jury to investigate the matter. A spokesman for the U.S. Attorney’s office declined to comment on its next move.
This comes as the Bronfmans finalized partners for a bid, which is likely to formally take place by month’s end.
In addition to a commitment from Wachovia Securities, Merrill Lynch and Cablevision, Mr. Bronfman also has lined up private equity firms Thomas H. Lee Partners and the Blackstone Group, both of which were part of a private equity group that purchased Vivendi’s Houghton-Mifflin publishing unit for almost $1.7 billion last October.
As part of the deal, Cablevision would contribute three cable channels, American Movie Classics, WE: Women’s Entertainment and Independent Film Channel, which are said to be worth as much as $5 billion, in exchange for a 25 percent to 33 percent stake in a newly formed entertainment company to be run by Mr. Bronfman. Wachovia, meanwhile, would lead a group of banks that could provide up to $9.5 billion in debt financing. The private equity firms would then step up and provide additional financing.
Officials at Thomas Lee, Blackstone and Cablevision all declined to comment.
Mr. Bronfman’s investment team is one of several parties interested in the entertainment properties. MGM has expressed interest, as has Liberty and an investment consortium that includes oil billionaire Marvin Davis and private equity firms Bain Capital and Texas Pacific Group. NBC and Viacom have also indicated an interest in the cable properties but are unlikely to get them given Vivendi’s preference to sell all of the entertainment assets to a single buyer.