Vivendi’s Tactics May Be Stifling Interest

Aug 4, 2003  •  Post A Comment

When it comes to selling its U.S. entertainment assets, has Vivendi Universal outsmarted itself?
As the Paris-based company continues to use stall tactics and staring contests to help drive up the price of its Vivendi Universal Entertainment unit, a growing number of bidders and observers are saying that the company’s strategy is backfiring, as increasingly frustrated suitors consider walking away from the auction.
One bidder, Metro-Goldwyn-Mayer, pulled out last week, calling the French company’s $14 billion price tag for VUE too high. And others are likely to follow, sources said.
“MGM’s withdrawal is proof of how upset the bidders are,” said a Wall Street banker. “If time continues to go by [with no resolution] and people are not treated fairly, they might just get on with their lives. They are upsetting some pretty powerful people.”
The increased resentment, first reported two weeks ago [TelevisionWeek, July 21], signals that Vivendi’s intransigence might have unwittingly hurt its chances to sell VUE-an asset Vivendi’s management hoped would fetch enough to significantly pay down its debt burden. Indeed, by sticking to the $14 billion price and refusing to acknowledge it might need to change its sales tactics, sources say the sale may be attracting more headaches than offers.
“We do believe that the process is screwed up,” said a person close to one of the bidders. “In terms of the value, we continue to ask them how did you get there. We assume we are getting the same information as the others, but the information flow has been incomplete, inconsistent and a little slow.”
Among the indications that the bidders might be backing off from the bidding: Viacom Chairman and CEO Sumner Redstone last week signaled his waning interest in the VUE assets in an interview with Reuters, saying he would not overpay for the assets. He added that he felt Vivendi’s price tag for the VUE properties was inflated.
And the investment team lead by oil billionaire Marvin Davis continues to sit on the sidelines deciding its next move after Vivendi in early July told the group to either raise its bid or exit the auction process altogether.
There is even word that Liberty Media, which had a meeting with Vivendi officials last week, might take a step back from the bidding as well. Sources say Liberty was rebuffed once already, when Vivendi denied its request to hold exclusive talks for the VUE assets, which include a film studio, television production company and cable channels USA, Sci Fi and Trio.
Liberty did not return phone calls seeking comment.
These developments come as Vivendi expects to have a final round of bids submitted by mid-August. That list should be winnowed down to one or two bidders by the end of August or early September.
The bidders said to still be in the hunt include an investment team led by Vivendi Vice Chairman Edgar Bronfman Jr., who has rounded up investment banks Wachovia and Merrill Lynch; cable operator Cablevision Systems; and General Electric’s NBC unit, which proposes to merge the broadcast network’s assets with VUE to create a new company in which Vivendi would own a stake. NBC is denying reports that they are willing to ante up as much as $3.5 billion in cash as part of a deal.
Besides spurring some bidders to abandon an offer, the slow-moving process could put further pressure on the asking price, sources familiar with the process say.
As the sale drags on, bidders learn more and more about the VUE assets, which could hurt Vivendi’s chances of getting what it’s asking.
Just last week, the company reported that second-quarter revenue tumbled 15 percent to e1.516 billion ($1.7 billion) as a result of a weak dollar and declines in VUE’s television production and theme park business, which more than offset gains seen at VUE’s studio and cable channels. Vivendi is scheduled to release second-half earnings data in September.
For its part, Vivendi’s management said it is negotiating the best way it can.
“These negotiations have always been based on precise requirements, and, as expected, some parties are not meeting those requirements,” said a source close to the company. “Going forward, Vivendi intends to proceed in a focused fashion so that the final transaction reflects the true value of the assets involved.”