Dillers French resistance

USA chairman sees new modus Vivendi and wants to buy out Seagram's share

Hoping to exploit the sale of Seagram & Co., USA Networks Chairman Barry Diller is angling for a way to secure greater control by taking out Seagram's $7 billion stake in his company.

Industry executives familiar with the deal said that after bristling under restrictions placed by Seagram, which owns 43% of USA, Diller is looking for a way to buy the stake out from the liquor and media company's soon-to-be owner, France-based Vivendi.

Unlike Diller's other large shareholders, Seagram has veto power over deals exceeding 10% of USA's market capitalization, limiting Diller to deals worth about $1.6 billion.

After a bold move to exchange Seagram's cable networks and TV production operation for a large stake in USA, Seagram Chairman Edgar Bronfman Jr. has become less expansive, unwilling to let USA pursue large stock-swap transactions that would dilute his holdings, and unable to put up much cash to boost his equity after a deal might close.

Bronfman's deal aversion was a major complication in Diller's talks to merge USA into NBC two years ago.

The executives said that two deep-pocketed USA shareholders, Liberty Media Corp. Chairman John Malone and Vulcan Ventures' Chairman Paul Allen, have been approached for support, but have so far balked.

"Diller wants to get free," said one executive. "He wants to be where he's not owned by Vivendi or Seagram."

"He's going down a wish list," of ways to do it, said one source at a major Wall Street firm. Among the items on that list is a possible spin-off of USA's Internet assets, the proceeds of which might be used to finance the Seagram buyout.

A USA spokeswoman would not comment. However, a USA executive firmly denied that the company has made any moves. "It's not true, completely and definitively," the executive said, adding that Diller wants to see if Vivendi Chairman Jean Marie Messier will give him the "running room" he gets from 22%-owner Liberty but didn't get from Bronfman.

The beginning of the USA-Vivendi relationship is inauspicious. Although Messier insisted that Diller and his company are "key assets" in Vivendi Universal, he admitted last week that Vivendi Universal does not yet have a plan to exploit its USA connection. He even acknowledged that he had not even met with Diller prior to the announcement of the merger.

Diller was conspicuously absent from and silent about last week's announcements. In fact, Diller and USA wouldn't have come up at all during the Seagram-Vivendi New York press conference if reporters hadn't brought them up. Two new board seats on the Seagram side of the company need to be filled. But Messier would not comment last week on whether Diller was even a candidate for a seat.

Still, Messier said that he believes the merger presents numerous opportunities for USAI to expand in Europe. That's where Vivendi has major wireless phone interests, Internet portal (Vizzavi) with 80 million customers, a 25% stake in satellite TV service BskyB and a 49% interest in pay TV service Canal+.

"USA Networks is one of the great assets of Seagram," Messier said, adding, "Barry Diller is a great asset for USA as well. I have great respect and admiration for Barry and for what he is doing within USA Networks."

To be sure, USA would seem to be important in Vivendi's media arsenal, giving it an instant presence in television in the U.S. with cable networks USA Network, Sci-Fi Channel and Home Shopping Network, TV production operation Studios USA and a large portfolio of Internet investments.

Wall Street analysts disagree on the likelihood Vivendi would sell because Messier is so intent on amassing a worldwide media portfolio. "From Vivendi's standpoint, there's no way they're going to sell this for cash, they don't need the money," said Salomon Smith Barney media analyst Niraj Gupta.

Messier insisted last week that "we intend to develop a relationship with USA and Barry Diller." But whether Diller intends to develop a relationship with Messier and Vivendi Universal is still very much in question.