Eyeing Vivendi's Assets

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It was a financial performance that only an AOL Time Warner shareholder could fully appreciate: In 2002, Vivendi Universal lost $25.6 billion, the biggest loss ever for a company based in France. The company took a $20 billion write-down on the value of its assets, due largely to the misguided merger with Seagram two years ago. Most of it was applied to the U.S.-based Vivendi Universal Entertainment (VUE) properties, acquired in the Seagram transaction.

"It would be a euphemism to say it was a difficult year," Vivendi CEO Jean-René Foutou deadpanned last week. That would be an understatement all right.

It's almost assured that the company's U.S. entertainment assets will be sold off this year or next. What the company is struggling to determine is how high a price it can get for them and whether it will have to sell the assets piecemeal in order to maximize their value.

So far, the company has one bid for VUE and the Universal Music Group from an investor group lead by Marvin Davis, who recently persuaded the Carlyle Group, Bain Capital and the Texas Pacific Group to put up capital in support of his $20 billion bid. There were reports last week that he threatened to withdraw the bid if Vivendi didn't negotiate exclusively with him to wrap up a deal. But sources familiar with the situation insisted Davis didn't "paint himself into a corner like that" and is "still in the game."

Others, though, have expressed interest in making a bid for some or all of the VUE assets, which include the Universal Film Studio; Universal Television, the TV production company that, with Dick Wolf, is responsible for the Law & Order
franchise; the USA Network, with its hit series Monk; and the Sci Fi Channel. Sources confirm that companies that have expressed such interest include Viacom, NBC and MGM-UA.

Short of confirming that the company plans to sell at least $7 billion in assets this year to help shore up its books, Foutou had little to say last week about the status of talks with those he has met to discuss such sales. The company does confirm that "several potential partners" have approached it.

"People ask me why don't you accept this or that offer ... or the one from Marvin Davis," Foutou said during a year-end financial presentation in Paris last week. His answer is that the company is focused on the long term. Well, two years anyway. And he will take his time considering what to sell and when and to whom. "We have to overcome a crisis from which we have not fully emerged," he said. Asset disposal at the best price "is not easy given the current climate."

During last week's presentation, Foutou did confirm a meeting with Sumner Redstone—but only because Redstone confirmed the meeting first.

And Viacom's interest is fairly limited. Redstone told attendees at last week's Bear Stearns media conference in Palm Beach, Fla., that he would like to get his hands on Sci Fi because his company has the programming (Star Trek, among other franchises) to fill it. Sources said that is pretty much the extent of Viacom's interest. The company really doesn't need another general-interest entertainment company like USA (it has TNN, CBS and UPN) and has no interest in the film company.

Although NBC will take a look at the assets, the General Electric subsidiary certainly would not make a bid for all of VUE. GE Chairman Jeff Immelt is on the record saying there is no interest in such a bid. NBC Chairman Bob Wright has said repeatedly that the company has no interest in being in the film business, and sources familiar with the situation said last week that he hasn't changed his mind on that score. But the company does have an appetite for cable networks.

Sources also confirm some interest on the part of Metro-Goldwyn-Mayer Inc. although the extent and shape of that interest remain unclear. With total annual revenue of less than $2 billion and a net loss of $142 million in 2002, the company would appear challenged to come up with a financial package to buy VUE outright. But then again, we are talking about MGM here: the most sold, merged, resold and de-merged (and re-merged) media company in the free world. So don't rule it out.

Then there's USAI and VUE Chairman Barry Diller. What designs he has on the VUE assets are unclear. Some say he has little interest in any long-term stewardship over them. With Diller, though, it's hard to predict what strategy he might embrace tomorrow.

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