Redstone Warms To All-Vivendi Deal

The dismantling of Vivendi Universal's U.S. entertainment assets could get a lot more interesting, as Vivendi CEO René Fourtou showed new flexibility in selling the properties and an important suitor—Viacom—suddenly indicated that it might be more open about what it might be willing to buy.

Vivendi Values
Ownership Est. Price (000)
Source: Sanford Bernstein & Co. analyst Tom Wolzien
Universal Studios86%$2,685
Universal Theme Parks86%$1,154
USA Network86%$4,334
Sci Fi Channel86%$986
USA TV Studio86%$664
USA Films86%$182
USA + Sci Fi$5,320

Viacom executives have previously said that they were interested only in Vivendi Universal Entertainment's (VUE's) cable networks, USA Network and Sci Fi Channel. Chairman and CEO Sumner Redstone didn't want to buy the Universal Studio movie- and TV-production operation or the troubled Universal Music.

That's changing. First, Fourtou said early last week that he would sell Universal Music separately from the TV and movie assets. And Redstone said in an interview last Thursday that he would consider buying both Universal's TV and movie assets.

Redstone still covets Sci Fi Channel primarily, keeping with his longtime preference for niche networks. But he said he would happily take USA Network if it were part of the package, cautioning that "We're extremely price-sensitive."

And, he said, "I won't rule out" buying the studio if Vivendi insisted on bundling movies and TV as a package.

Viacom already has a movie and TV studio in Paramount, so buying Universal would leave a lot of redundancies and likely trigger a tense antitrust review in Washington.

But those wouldn't be issues in what Redstone characterized as his "ideal solution": teaming up with Barry Diller. "Diller could take the studio; we would take the networks."

Diller, the chairman and CEO of USA Interactive (USAI), has long coveted a movie studio, harking back to his days running Fox's TV and movie operations. He has been circling VUE for months and is deeply entwined with Vivendi. It's not at all clear, though, that he would be interested in owning only the studio.

Redstone didn't say whether he has had any conversations with Diller, although he did say that he and Diller have a good relationship despite their fierce takeover battle for Paramount a decade ago. At that time, Diller was at the helm of QVC and was backed by Liberty Media and Comcast.

A spokesman for Diller wouldn't comment on Redstone's remarks.

Diller has said that he's no longer chasing VUE, dismissing the contention he has "desperate yearnings" to control a studio and TV portfolio. Few media executives believe him.

A year ago, Diller sold USA Network and Sci Fi back to Vivendi, whose predecessor company had swapped the channels in exchange for a 43% stake in USAI. The sale gave USAI 5.4% of VUE's equity and—for a time—left Diller chairman of VUE.

Diller has sued Vivendi, saying the company is reneging on a pact to cover any of USAI's tax bills stemming from the sale of USA Network and Sci Fi to Vivendi. That bill could ultimately triple, depending on how a sale of VUE is structured. The lawsuit is widely seen as aiming to make it trickier for other players to buy VUE, although Diller says that he is no longer particularly interested in buying the company for himself.

Viacom's shift could be important for Fourtou, who has met with Redstone twice to feel out what kind of a deal they might make. While the cable networks are coveted by many companies, the studio is not. Hence, he doesn't want to split them up and be stuck with the studio. So far, only oil billionaire Marvin Davis has made an offer to buy both sides.

Industry executives said that NBC has also expressed interest but so far only in the cable networks.

At Vivendi's heated annual shareholder meeting in Paris last Tuesday, Fourtou finally acknowledged that, oui, there is an "en vente" sign on VUE, something that everyone but Fourtou would say.

But he also said that he would not separate the cable networks from the movie and TV studios. "Obviously, we're after cash, and we're after value," Fourtou said. "We're very keen on disposing of it under circumstances that will be optimal for us and for the team that is there."

He told shareholders he would take ailing Universal Music out of the package and sell it separately or even hang on to it for a couple of years. Universal Music "can stand to be kept for quite some time," he said. "It could stand some changes."

For all the frenzy about Apple Computer's tentative approach about buying the record company, Fourtou said, "we have, for the time being, received no proposal."

Fourtou continued his biting criticism of his predecessor, Jean-Marie Messier, who used the financial strength of Vivendi's water and telecom utilities to stitch together a giant media empire, buying Seagram Co. for its TV and movie assets. The resulting debt threatened to topple Vivendi last year, and Messier was axed, ending his ability to use Vivendi to finance a lavish lifestyle.

Fourtou said it is ridiculous to assume that Vivendi could be such a big player in U.S. media. "It would be a delusion to think that we, a French group, can become a leader in American television," he told shareholders.

Messier is suing Vivendi to collect payouts he says he's owed under his French and American employment contracts.

"We have decided to pay him nothing," Fourtou said, noting that Messier owes three months back rent on a company apartment he occupied until March. The tab: $31,000 per month.