Davis Woos Vivendi With $20 B Bid

Now it's a high-stakes cat-and-mouse game with Diller's old foe

Vivendi's wild ride of the past year got even wilder (and a little weirder) last week as its U.S. entertainment assets were effectively put into play by a $20 billion offer the company said it wasn't interested in.

That offer came from oil billionaire and once-and-would-be-future-media-mogul Marvin Davis, who insisted last week that he would continue his pursuit of Vivendi Universal Entertainment despite Vivendi's professed lack of interest in selling.

The bid and its rebuff evolved into an odd sort of their-word-against-ours back and forth last week, with the Davis camp insisting that talks have heated up over the past couple weeks, with more scheduled for early next year. Vivendi people, on the other hand, confirmed that they met with Davis's people to hear his offer. But Vivendi sources insist that Davis's people were subsequently told that the assets weren't for sale and that no further meetings have been scheduled with Davis or his representatives on the matter.

Bad blood

The Davis offer came to light amid speculation that Vivendi was strongly considering spinning off its entertainment assets into a separate publicly traded company that would comprise the film, TV-production and music units, along with Barry Diller's USA Networks properties, which include USA and the Sci Fi Channel. Speculation is that Diller—an old nemesis of Davis's—would run the company. The two worked together at Fox in the early '80s, and the relationship was a rocky one. Ultimately, Davis sold his interest in Fox to Rupert Murdoch's News Corp.

Last week, Diller wasn't talking about the situation publicly. Privately, sources close to him said that he was skeptical that Davis could pull together the financing for a $15 billion bid—let alone some higher figure that Vivendi might be forced to consider in the best interests of stockholders. Over the years, Davis has made a number of attempts to get back into big-time media since disposing of Fox. Those efforts included runs at CBS, NBC and MGM.

At least for now, Wall Street seems skeptical. "I don't think it makes any mathematical sense," said Michael Nathanson, the Sanford C. Bernstein analyst who covers Vivendi. The Vivendi Universal entertainment assets throw off about $1 billion in cash annually, he said. The way he figures it, Davis's annual interest payments on a $20 billion financing package ($15 billion cash and the assumption of $5 billion debt) would come to $1.2 billion. Not exactly a great return on investment. "We don't believe it could be financed, for one, or that he'd be taken seriously," Nathanson said of Davis.

Vivendi's denial

The skeptics don't faze Davis, however. He put out a statement confirming his bid for all of Vivendi Universal's entertainment assets. He also claimed that "the Davis group has met with senior VU officials in Paris to discuss the acquisition and has been invited back to continue the discussions after the first of the year. We believe our proposal provides full and fair value for the assets, and VU's response has been positive."

But VU's response was anything but positive as far as Davis's offer was concerned. VU's statement, issued after Davis put out his release, confirmed a Nov. 5 meeting but said that, "afterwards, the Vivendi Universal team then indicated to Davis representatives that the sale of Vivendi Universal's entertainment assets was not on the agenda."

Davis indicated that, if he and his financial backers succeed in acquiring the assets, former Fox Television Chairman Brian Mulligan would "play a leading role" in managing them. That was a clear signal that Diller would be out of the picture if the bid goes through—although he would have a handsome payoff: more than $1 billion after taxes, analysts say. (If Vivendi does sell to an outside party, it is obligated to cover Diller's and USAI's tax liability up to $2 billion.)

Mulligan in the Stew

There was speculation last week that Mulligan was a key architect of Davis's bid. And he knows the assets pretty well: He was co-chairman of Universal Pictures in the mid 1990s before joining then-Universal parent Seagram as chief financial officer in 1999. Davis credited Mulligan as the mastermind of media transactions valued at over $80 billion over 20-plus years in the media business.

In his statement, Davis, who is now 77, praised the heads of the operating units of the Vivendi assets, saying he has "a lot of respect for [film studio president] Ron Meyer, [music division president] Doug Morris and their people." No mention of Diller, however.

Davis and Diller are old adversaries. Just over 20 years ago, Davis purchased Twentieth Century Fox and hired Diller to run it. The two executives butted heads constantly over the direction of the company. Even after Davis finally sold out to Murdoch in 1985, the bad blood reportedly remained between Davis and Diller. Murdoch and Diller got along well enough and created the Fox TV network together. But, by the early '90s, Diller wanted a piece of the equity, which Murdoch wouldn't give him, so he left.

Davis the Dabbler

In media, at least of late, Davis has been a dabbler. His big money comes from oil and gas exploration, and he's still chairman of Davis Oil. Owning Fox in the early '80s was his big media play. His oldest son, John, runs Davis Entertainment Co., which has developed a number of films (Courage Under Fire) and TV movies (This Can't Be Love). The company owned a couple of middle-market TV stations but sold them in 1995.

Currently, the Davis family is involved in a joint venture with Fox to build and operate TV stations in smaller markets where Fox doesn't have affiliates, including Wausau, Wis., and Clarksburg, W.Va.

The venture also has applications pending for construction permits in Corpus Christi, Texas, and Topeka, Kan.