Vivendi in USA Networks TV Talks

By | December 12, 2001 at 12:00 AM

Vivendi Universal, seeking an elusive U.S. distribution outlet for its array of television and film assets, said on Tuesday it was in talks with USA Networks, sending the U.S. firm’s stock up sharply.

Vivendi chief Jean-Marie Messier told Reuters the talks with media mogul Barry Diller’s USA Networks may lead to a purchase of the firm’s entertainment assets. But he rubbished as “absurd” a report that Vivendi could pay up to $18 billion.

“We confirm that discussions have been ongoing for several months between Vivendi and USA Networks with a view to optimizing synergies in the entertainment area,” Messier said.

“These talks at their current stage may or may not lead to a transaction,” he added in a telephone interview.

A USA Networks spokeswoman declined to comment. Both Messier and USA Networks CEO Diller have said repeatedly in the past they have been in talks to forge a closer relationship.

A deal would see Vivendi buy back the television assets that Edgar Bronfman Jr., the outgoing executive vice chairman at Vivendi, sold to Diller in 1997 for around $4.1 billion.

Bronfman, 46, folded the family-controlled Seagram liquor group into Vivendi last year, but last week abruptly announced his decision to step down as executive vice chairman in 2002.

Vivendi owns 44 percent of USA Networks, which produces the hit TV series Law & Order and owns such cable channels as the flagship USA Network and Home Shopping Network. It also controls ticket agency Ticketmaster.

At current market prices, USA Networks is worth around $9 billion in market value, but convertible stakes held through subsidiaries by Vivendi and Liberty Media would roughly double that, assuming they were fully converted into common stock.

USA Networks shares rose sharply to trade up nearly 10 percent following Messier’s comments and at 1745 GMT were up 4.3 percent at $24.99, with almost two percent of the company traded.

But concerns over the potential price tag wiped 2.8 billion euros off Vivendi’s value in Paris, where its shares closed down 4.4 percent at 56.5 euros after falling as much as 6.2 percent.

Messier stressed that if a deal were struck it would not involve new Vivendi shares, and in a statement Vivendi said any deal would enhance, not dilute, its earnings per share.

But in a signal that it would rely mainly on debt to finance the deal, Vivendi said it would involve only “limited cash.”

“There are still fears that Vivendi will overpay for this asset as they appear to have done on a number of acquisitions recently. However, strategically it makes sense, and Vivendi has suggested it will be paying for this mainly in debt,” said one London-based analyst.

TURNING UP THE HEAT

USA Networks’ entertainment arm accounts for about a third of a business that generated over $4 billion in sales in 2000.

Messier, chief executive of the media titan that owns Universal Studios, Universal Music Group and Canal Plus pay TV service has expressed concern that the company is “leaving money on the table” by not forging a tighter relationship with USA Networks.

The French civil servant and banker-turned-media-magnate has long advocated using Diller’s expertise on the Internet to boost Vizzavi, Vivendi’s wireless Internet network joint venture with Vodafone Group Plc.

He has also said the Home Shopping Network, Ticketmaster and the Citysearch network of local entertainment listings Web site, could benefit from international expertise.

But in recent months, Messier has turned up the heat.

In July, Messier reached a pact with Diller that allows Vivendi to increase its stake to 50.1 percent. Vivendi’s previous agreement with USA Networks prevented it from increasing its stake until February 2002.

And early last month, Messier said he thought USA Networks could help create value for Vivendi’s own film and television library.

But Diller, who has headed Paramount Studios and the Fox television network in the past, is believed to be reluctant to join any organization he cannot control.

The New York Post said Diller was negotiating to keep hold of the transactional business and pocket a premium for his super voting shares of as much as $2 billion. Diller controls 74 percent of the USA Networks’ voting power.

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