Experts Say Vivendi May Get Less in Deal

Sep 15, 2003  •  Post A Comment

As General Electric and NBC negotiate the fine print of the high-profile deal that will merge the broadcast network with Vivendi Universal’s U.S. entertainment assets, some observers are wondering how many devils might be in the details.
With the euphoria of a transaction that has widely drawn kudos for both NBC and Vivendi wearing off, questions are beginning to surface about just who is coming out on top. It now appears not only that NBC is doing the deal with a minimal amount of cash, but also that it has made a number of other shrewd moves that could mean Vivendi walks away with far less than it anticipated.
While Vivendi on the surface appears to be getting the price it sought during a drawn-out bidding process, some sources suggest the French conglomerate’s reality could be very different.
Chief among the issues is the value of the transaction itself. Though some sources have pegged it at $14 billion, in many ways the actual figure is ephemeral because it’s based on factors that will take years to pin down and that might not materialize if the new company stumbles.
Vivendi, which insisted on a $14 billion price tag during the auction process, won’t be able to start monetizing its 20 percent stake in the new company until 2006, when it can begin selling that stake. While there is a good chance the value could increase in that time, it is possible its worth could head south-in which case Vivendi could wind up with less. GE will control the other 80 percent of the newly formed media giant.
To get the deal done, Vivendi had to agree to take two of the more complicated situations off the table. The first, and most publicized, is whatever payment may be due to Barry Diller. The chairman of InterActiveCorp. owns a stake in Vivendi Universal Entertainment that he values at $2.4 billion. In the months leading up to the Vivendi-NBC deal, Mr. Diller loomed large over the proposed sale, expressing an interest in cashing out his stake. He is also locked in a legal battle with Vivendi over a tax matter that could put Vivendi on the hook for more than $620 million in taxes.
These days Mr. Diller has publicly said he has no immediate cash needs and at least for the time being won’t be seeking to monetize his stake in VUE. However, if he changes his mind, that payment would come out of whatever Vivendi has gained in a sale of its stake, sources familiar with the situation said.
Less publicized has been the Bronfmans’ situation. The group is not only a losing bidder in the battle but also the largest shareholder in the existing public company with 4.2 percent. Under the terms of the sale, according to sources, Vivendi is responsible for satisfying any claims by the Bronfmans. That could mean giving them a share of Vivendi’s stake in the new entity, or it could result in a large cash payout sometime in the future. There is also the potential for a hefty payment to settle tax issues.
If the Bronfmans insist on cash, their stake alone would cost about $800 million, based on Vivendi’s U.S.-traded share price of $17.81 (at last Thursday’s close in New York).
There is also another unknown that could impact the value of the deal. It is widely expected that GE will move some debt assigned to NBC to the new venture. There is no indication yet how much that might be. The idea is to take it off the GE books eventually, to help the stock price. However, a person close to GE noted that given the 80 percent control that GE would have over the new company, its finances would be rolled into the parent and ultimately show up on the balance sheet.