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Vivendi Stalls, Bidders Fume

Jul 21, 2003  •  Post A Comment

Vivendi Universal’s decision to drag out the auction process to squeeze the highest possible price for the French company’s U.S. entertainment assets is creating an ever-more-acrimonious atmosphere around the bidding and could backfire, according to some of the increasingly unhappy bidders.
One concern is that the uncertainty about the future management of the studio is making talent at the company’s Vivendi Universal Entertainment unit anxious and could chill renewals and new deals with key actors, writers and producers. Another growing concern is that as more and more information is released or leaks out, it may cause some bidders to question whether the assets are worth what the bidders have already offered.
So far none of the six parties interested in VUE has thrown in the towel, but the public nature of the process and the increasing behind-the-scenes sniping among the bidders has some cautioning that suitors might pull out and save themselves the headache. “Vivendi is trying to outsmart the bidders,” said one bidder. “There is a lot of game-playing going on.”
The latest example came last week, when Metro-Goldwyn-Mayer offered to raise its offer by $300 million to $11.5 billion for VUE in exchange for more information. Vivendi publicly rebuffed the offer, which is widely believed to be the highest currently on the table, saying it was too low. It also officially declined to provide any additional information, although sources indicated that behind the scenes Vivendi was working to clarify and amplify some of the data in the offering documents. A source close to MGM said its primary interest is in details of international TV licensing agreements and cable channel carriage contracts, but that MGM already had all the information they needed on various commitments by the movie division.
Although speculation abounded that the back-and-forth between MGM and Vivendi last week had cooled the talks between the two, people close to both companies maintain that MGM is very much still in the hunt and remains a leading contender to walk away with the VUE assets.
Spokeswomen for both MGM and Vivendi Universal declined comment.
The MGM-Vivendi Universal flap comes as Vivendi Universal makes it clear that amid all the talk about which of the six bidders-MGM, Liberty Media, General Electric’s NBC unit, Viacom and investment teams headed up by oil billionaire Marvin Davis and Vivendi Universal Vice Chairman Edgar Bronfman Jr.-is best positioned to snag the U.S. entertainment assets of Vivendi Universal, the deciding factor is likely to be which offer comes with the most cash.
That’s because as far as Vivendi Universal’s management is concerned, cash is king. The company, lumbering under a mountain of debt, is keen to chip away at it as quickly as possible. That means that management isn’t likely to accept a deal that doesn’t have a sizable cash component, people close to the company and the bidders said.
Right now, sources say MGM and Liberty, both of which have cash-intensive bids on the table, are leading the pack of bidders. The Davis team, which a few weeks ago was told to bolster its bid or get out of the running, continues to examine its options but maintains it is still in the hunt. Marvin Davis was hospitalized for a period last week, sparking rumors he might drop out, but his spokesman said he has been released and remains very interested in doing the deal. A Liberty spokesman declined to comment.
A person close to Vivendi Universal confirmed that as far as management is concerned, “cash is more palatable over debt and equity.”
But that shouldn’t send the message to bidders that Vivendi will accept fire-sale prices that happen to be cash-heavy, the person warned. “Our focus is creating value for shareholders, which means we can sell VUE, keep a piece of it or do nothing,” this person said.
What’s more, Vivendi Universal’s management has made it clear that the company is in better financial health today than it was six months ago. The Vivendi insider noted that the company will achieve its goal of selling off $7 billion in assets by year-end, even if it doesn’t sell VUE. “We no longer have our back to the wall,” the insider said.
However, exactly how solid Vivendi Universal’s footing is remains to be seen. Despite their public confidence, sources familiar with the company said that Vivendi Universal management is still very much worried about cash. “They’ve put a brave face forward, saying they don’t need to worry about cash,” said a person familiar with the company. “But a lot of what they’ve done is extend the maturity of their debt.”
A Wall Street banker agrees: “They are not as strapped for cash as they were eight or nine months ago, but timing is still a factor and things are not resolved.”
Vivendi Universal’s cash need also explains why most bidders dismiss as posturing the company’s repeated reminders to Wall Street and the bidders themselves that it is concurrently exploring an initial public offering of its entertainment unit. While an IPO is an option certainly available to them, most observers believe the company will have a tough time executing a decent deal.
“They are going to have to accept less cash in an IPO, assuming they can even get it done given the [Securities and Exchange Commission] investigation and the fact that they don’t have the management in place,” said one bidder. “They are going to do what’s rational, and that means taking the cash today.”
An IPO takes time, which several observers said Vivendi Universal doesn’t really have, despite the public posturing. As the Paris headquarters figures out what to do with VUE, sources say VUE’s brain trust remains in limbo about their future. Any further delays could spark an exodus that would devalue VUE, these sources warn.
“If the creative types [actors and leadership] start to leave, [VUE] can’t go public,” a Wall Street banker said.