Four years after the divorce, Vivendi Universal and USA Networks are poised to tie the knot again in a $12.4 billion deal, expected to be announced today in New York. The deal will put the TV assets acquired by USA in 1997 back under Universal’s control and install USA chairman and CEO Barry Diller as the head of the studio’s film, TV and theme park operations.
Sources said the complex transaction was structured as the creation of a joint venture between Vivendi Uni and USA encompassing Universal’s film studio and theme parks and USA’s cable channels, including USA Network and Sci Fi Channel, and the Studios USA and USA Films production units.
Diller will serve as chairman and chief executive of the venture, tentatively named Universal Entertainment Group, which will have its own board of directors – separate from the Vivendi Uni board – to which Diller will report. Vivendi Uni’s vast music holdings and its European broadcast giant, Canal Plus, will not be included in the venture and thus remain outside of Diller’s purview.
But in a maneuver that is sure to enhance Diller’s reputation as a master deal-maker, the maverick mogul will retain USA’s Home Shopping Network, Ticketmaster service and other e-commerce, interactive and transactional assets as a separate business that he alone will control. The erstwhile USA Networks will be reborn as USA Interactive, with Diller remaining chairman and CEO.
Vivendi Universal will shell out about $9 billion worth of USA stock that it owns plus some Vivendi stock to bring the USA assets into the joint venture. It will also pay $1.65 billion in cash to USA, which also gains a minority interest in the Vivendi Uni-USA joint venture valued at $750 million. Furthermore, Vivendi Uni will assume about $1 billion in tax liabilities stemming from the transaction. As part of the deal, Vivendi Uni will also use Treasury shares to buy out Liberty Media’s 21% stake in USA. The move will make Liberty a 3.6% shareholder in Vivendi Uni.
Sources close to USA said Diller would likely use the cash from the Vivendi Uni deal to beef up USA Interactive’s holdings through acquisitions, such as a major Web portal site or a big e-commerce player like Amazon.com.
Vivendi Uni’s board of directors was said to have approved the USA deal Friday when it met to discuss the USA acquisition as well as its $1.5 billion investment in satellite provider EchoStar Communications. USA Networks’ board was set to meet Sunday evening. Representatives for Vivendi Uni and USA declined to comment Sunday on the pending deal announcement.
If completed as planned, the transaction would give Vivendi Uni a controlling 93% stake in the entertainment joint venture while reducing its stake in USA Interactive from 43% to 12%, giving Diller free rein over the management of USA Interactive. The 1997 deal, in which Diller acquired Universal’s domestic TV production and distribution units and USA and Sci Fi channels for $4.1 billion, left then-Universal parent Seagram Co. with a 43% stake in USA and the ability to veto any transactions that would dilute that stake.
As such, the new deal with Vivendi Uni gives Diller the corporate muscle he needs to compete in Hollywood’s traditional film and TV businesses with competitors like AOL Time Warner and News Corp. while enhancing his ability to operate in new-frontier business sectors such as convergent media and e-commerce.
And that’s the same motivation that spurred Vivendi Uni chief Messier to court Diller ever since he completed Vivendi’s $34 billion acquisition of Seagram and Canal Plus late last year. Sources said Messier quickly realized that Universal was handicapped by the lack of a significant presence in the U.S. television market.
The partnership with Diller brings to Vivendi Uni a respected executive who has clout on Wall Street, which has in the past sometimes ignored Vivendi Uni because of its French roots and its complex portfolio of businesses. Investors have also voiced concern that the company was focused on wireless and online distribution of content while not controlling any TV networks.
So after betting big on alternative forms of distribution, particularly in the online music arena with the acquisition of MP3.com, Messier’s deal with Diller serves a kind of grounding force for Universal in its core businesses. The re-acquisition of the cash-rich USA Network and Sci Fi Channel will be a boon to Universal’s bottom line, observers noted.
In the new era of vertical integration among TV networks and studios, the USA Network is a valuable distribution vehicle for Universal-produced programming, yet speculation persists that Diller and Messier will eventually make a run for NBC.
But the biggest question Hollywood was buzzing about last week as rumors of the Vivendi Uni-USA reunion picked up steam was how Messier and Diller would get along in their new marriage. Both are known as hard-driving, hands-on managers with a taste for the limelight.
On the lower rungs, there’s virtually no overlap between USA and Universal on the TV side, but there was much speculation about how Diller’s style would mesh with Ron Meyer, Universal Studios president and chief operating officer, and Universal Pictures chairman Stacey Snider. Some observers said, however, that Messier’s move to keep Meyer and Snider in their respective positions could go a long way toward calming Wall Street worries of a potential upheaval at Universal Studios following Diller’s arrival.
After a long slump at the boxoffice, Universal has rebounded with a string of successes during the past two years, including “The Mummy,” “American Pie,” “Erin Brockovich,” “Dr. Seuss’ How the Grinch Stole Christmas,” “The Fast and the Furious” and “The Mummy Returns.”
USA’s USA Films division is expected to remain a separate unit within Universal overseen by Michael Jackson, the former Channel Four chief executive who just signed on with Diller in October as president and CEO of USA Entertainment. Jackson is expected to be named chairman of television and USA Films at the new joint venture, with Snider having input on creative matters involving USA Films.