Bronfman bid raises questions

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http://www.latimes.com/business/printedition/la-fi-vivendi22may22223421,1,4308217.story?coll=la%2Dhea dlines%2Dpe%2Dbusiness

Bronfman's Vivendi Bid Met With Doubt

His play for control of firm's entertainment assets fails to generate investor confidence.

By Richard Verrier
Times Staff Writer

May 22, 2003

Edgar Bronfman Jr.'s eleventh-hour decision to try to buy Vivendi Universal's entertainment assets was greeted Wednesday with skepticism by Wall Street and Hollywood insiders.

Given his track record, many wondered how Bronfman, the vice chairman of Vivendi's board, would be able to pull off an ambitious play for Universal's movie studio, theme parks, television assets and Universal Music Group, the world's largest recording company. The assets are valued at about $16 billion, excluding debt.

After all, it was Bronfman who decided to join forces with former Vivendi Chief Executive Jean-Marie Messier when his family sold the Seagram Co. entertainment empire in 2000 to the French company for $34 billion. The deal produced disastrous results for investors, especially the Bronfmans.

Before the sale, when Bronfman headed Universal's entertainment operations, he was criticized in Hollywood for his decision to break off the TV group from the film studio by selling a controlling interest to media mogul Barry Diller. Vivendi subsequently repurchased the TV businesses — for more than twice the sale price.

"He's not someone Wall Street would say is bankable," said Michael Nathanson, a media analyst with Sanford C. Bernstein. "The last time Wall Street saw Mr. Bronfman, he was shaking Mr. Messier's hands. That image has always been in our minds."

Bronfman's stature recovered a bit last summer, when he helped lead the boardroom coup that ousted Messier. But he faces an uphill battle with his plan to put together a group to bid on the Universal assets, analysts and investors say.

"He's seen by many on Wall Street as something of a dilettante, but you can't rule out any outcome because of the family's wealth and interest in the assets," New York money manager Andrew Wallach said.

Bronfman's entry into the bidding fray will heighten the competition, analysts say. Other interested parties include Liberty Media Corp., Viacom Inc., Metro-Goldwyn-Mayer Inc., General Electric Co.'s NBC and an investment group headed by oil tycoon Marvin Davis.

Vivendi's stock rose $1.19 to close at $17.30 on Wednesday on the New York Stock Exchange.

"The interest in the stock is building as people see the auction process emerging," Wallach said.

Bronfman's play would put him in direct competition with one of his former employees, Brian Mulligan. Mulligan is the architect of an offer from the Davis group to buy a controlling interest in the Universal holdings for $13 billion. Mulligan declined to comment Wednesday.

Vivendi CEO Jean-Rene Fourtou called a meeting of Vivendi's corporate governance committee to discuss the potential Bronfman bid, Vivendi said in a statement.

The company said that to avoid a possible conflict of interest, both Bronfman and his father, who also sits on the Vivendi board, had agreed to stop attending board or committee meetings. It added, "Bronfman does not possess any recent and substantial information concerning this contemplated transaction."

Bronfman has lined up financing from Wachovia Corp. and Merrill Lynch, sources say. They say he has had talks with several private equity firms, including Blackstone Group, which has been negotiating to buy Universal's theme park group.

Bronfman has had preliminary discussions with Cablevision Systems Corp. CEO James Dolan about teaming up to buy the Universal assets, which Vivendi is selling to raise much-needed cash.

"We have high confidence in Mr. Bronfman's leadership and look forward to the opportunity that lies ahead," Cablevision said.

Under one scenario, sources say, Cablevision would contribute the programming assets of its Rainbow Media division in exchange for a stake of up to 35% in a new, privately held company.

Merrill Lynch values Rainbow, which owns American Movie Classics, WE: Women's Entertainment, Independent Film Channel and the MSG sports network, at $4.6 billion. Combining with Universal could especially strengthen American Movie Classics, which has struggled to compete against better-heeled channels such as HBO, Showtime and Starz.

Expanding the TV group would be a key facet of his strategy, Bronfman said Wednesday.

"I love these businesses," he said. "I would look forward to adding renewed strength and vigor to them."

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http://www.nytimes.com/2003/05/22/business/22PLAC.html


May 22, 2003
Possible Vivendi Deal Is Raising Some Questions
By GERALDINE FABRIKANT and ANDREW ROSS SORKIN


While the entrance of Edgar Bronfman Jr. yesterday into the bidding circus for Vivendi Universal's United States entertainment assets caused a stir on Wall Street, Vivendi still does not appear to have a single attractive option for selling the businesses.

Mr. Bronfman's desire to assemble a team of strategic and investment partners to buy Vivendi's film, television, music and cable businesses seemed to be good news for the company, which is struggling under a huge debt load and hopes to use the proceeds of a sale to reduce it. Vivendi's American depository receipts rose 7.4 percent, or $1.19, to $17.30 yesterday.

However, Mr. Bronfman, who suspended his role yesterday as a director of Vivendi along with his father, has not yet put together the necessary financing from investors, and shares of the Cablevision Systems Corporation fell 3 percent yesterday on the news that it might join the bid. Moreover, under the offer Mr. Bronfman is trying to assemble, Vivendi would still have a stake of nearly one-third of the new company and would be dependent on Mr. Bronfman's management for success.

At the same time, it is not clear that a group led by the entrepreneur Marvin Davis will actually put an offer on the table after it does extensive due diligence, which is scheduled to begin next week.

Liberty Media, which is run by the cable entrepreneur John C. Malone and is considered the most credible bidder, is not interested in buying Vivendi's music business. Other potential suitors are not interested in acquiring only the music business.

Both Viacom and NBC are said to be interested in buying Vivendi Universal's cable channels, but it might be difficult for Vivendi to sell the remaining businesses if a buyer took only the cable assets.

Mr. Bronfman is pressing hard to find financing, and he said in a phone interview yesterday that he would expect to be the chief executive of the company if he pulls off a deal. He seemed convinced that he could lead the company successfully despite critics who say his leadership of Seagram and its subsequent sale decimated his family's fortune.

"I would not have taken the step unless I knew that we would have a real competitive bid," he said.

In the current environment, with investors searching for deals, Mr. Bronfman may be able to raise the financing, experts said. So far, he has secured some debt financing from Wachovia and Merrill Lynch, which is acting as his financial adviser. But several bankers and analysts cautioned yesterday that Mr. Bronfman had a controversial track record as a manager, and equity investors might well be reluctant to have him oversee the company.

Most notably, investors recall that after he sold Seagram to Vivendi, shares of Vivendi plummeted from more than $80 to their current level.

Even his early days at Seagram have been criticized. Under his stewardship, Mr. Bronfman sold Seagram's stake in DuPont and bought MCA Inc., the parent of Universal Studios. Mr. Bronfman pointed out that under his leadership the music business became "the best in the whole world."

But critics recall that he sold the company's television production business and cable systems to USA Networks Inc. The sale of the television business, the core of the entertainment operations, was widely criticized at the time. Vivendi later bought those businesses back, handing USA a huge profit.

Mr. Bronfman was quick to argue that he had done a good job as head of Seagram and that the problems had developed after he agreed to sell the company to Vivendi.

Nevertheless, investors in Cablevision, Mr. Bronfman's main strategic partner, seemed unhappy yesterday about the alliance and the prospect of getting more heavily involved in the entertainment business. Under the deal Mr. Bronfman is putting together, Cablevision, which owns several cable networks including American Movie Classics and the Independent Film Channel, through a subsidiary called Rainbow Media Holdings, would add those services to Vivendi's assets in exchange for a 30 percent stake in the new company.

In a statement, Cablevision said: "Vivendi's entertainment properties are very attractive assets overseen by a strong management team. We believe that these assets could potentially fit well with certain Rainbow properties. We have high confidence in Mr. Bronfman's leadership and look forward to the opportunity that lies ahead."

Matthew Harrigan, a cable analyst at Janco Partners in Denver, said that investors were leery of such a deal. "As a cable operator, do you want to be involved in owning a movie studio and record company," he said. "Investors want a pure play, rather than an indirect interest in such volatile businesses."

Mr. Bronfman's prospective bid has some tensions of its own because the Bronfman family owns 24.5 million shares, or 2.3 percent, of Vivendi. As a shareholder, Mr. Bronfman benefits if his group overpays for the assets, but as a buyer of the assets, his group would be making a poor deal for itself.

Because of his dual role, some media experts wondered yesterday whether Mr. Bronfman might be floating the notion of a bid simply to increase investor interest in Vivendi. "Oh, come on," Mr. Bronfman responded. "There is not some vast financial conspiracy to bolster the Bronfman family."

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May 22, 2003


EUROPEAN BUSINESS NEWS

Bronfman Vivendi Bid
Meets With Skepticism

Some Analysts, Bankers Question Ability
Of Bronfman to Find Financing for Offer
Edgar Bronfman Jr.'s planned bid for Vivendi Universal SA's U.S. entertainment businesses was greeted skeptically by Wall Street executives who question whether private-equity firms will finance his purchase of a big media company.

Investors took the news more seriously, sending the French company's stock price up sharply. In Paris trading, Vivendi's shares closed at €14.70 ($17.22), up 80 European cents, a gain of 5.8%, while its American depository shares rose $1.19, or 7.4%, to $17.30 in 4 p.m. New York Stock Exchange trading.

The stock-price rise shows why Mr. Bronfman's move is a no-lose proposition. Even if the Vivendi vice chairman fails in his bid, his tactic could heat up the auction and ultimately raise the value of Vivendi's stock -- a benefit to the Bronfman family, one of Vivendi's biggest shareholders.

Mr. Bronfman disclosed his intention to make the offer in an interview with The Wall Street Journal1 on Tuesday. Mr. Bronfman is assembling a group including Cablevision Systems Corp., Bethpage, N.Y., which is expected to contribute its entertainment cable networks in exchange for equity in a new company. The assets sought by Mr. Bronfman include Universal Music, the world's largest record company; Universal Studio; and the USA and Sci-Fi cable channels. Most of these assets were once part of Seagram Co., which was controlled by the Bronfman family until it was sold to Vivendi in 2000.

The Bronfman family will contribute some money to a planned bid, but Mr. Bronfman is counting on taking on some buyout firms as backers. That could be a tall order, as the business is likely to be valued at least $15 billion. Bankers and private-equity investors say it is generally difficult to raise private-equity money for media buyouts, particularly for businesses that are historically volatile.

"These are very complicated businesses that don't lend themselves to leveraged buyouts," said one investment banker. One industry executive said that Mr. Bronfman may be able to get commitments for private-equity funding but not at the price that he would need to be competitive with other bidders. A spokesman for Mr. Bronfman said he is increasingly confident he can secure the private-equity portion of the financing.

Since private-equity firms rely heavily on management in their deals, Mr. Bronfman's search for backing will likely put a spotlight on his own track record. As chief executive of Seagram, Mr. Bronfman was criticized for swapping his family's stake in DuPont Co. for the risky and glitzy entertainment business. He then split Universal's film and television businesses by selling control of the TV businesses to media mogul Barry Diller, a deal that was effectively reversed by Vivendi last year. His sale of Seagram to Vivendi was initially viewed as a smart move but backfired badly as Vivendi's then-CEO, Jean-Marie Messier, almost bankrupted the company with an acquisition spree.

A spokesman for Mr. Bronfman defended his management skills, saying that from the time Mr. Bronfman first bought entertainment assets until he sold the company, he significantly improved the market positions of its film, music and theme-park divisions. The spokesman added that Seagram's market capitalization more than doubled between 1994, when Mr. Bronfman became CEO, and 2000, when he sold the company.

Sanford C. Bernstein analyst Michael Nathanson said Mr. Bronfman is a credible bidder. "There's such a surplus of private equity out there," he said. He rates Mr. Bronfman's chances of raising the necessary funds at 50%, which he describes as "pretty good odds."

Mr. Bronfman's planned offer pits him against oil billionaire Marvin Davis, who in late 2002 approached Vivendi with an offer for the U.S. entertainment assets valued at $20 billion, including $5 billion of assumed debt. Vivendi's board initially decided the offer was too low. But Mr. Davis is still actively courting Vivendi and is considered a real contender, said one person familiar with the situation. Several other companies, including Viacom Inc. and Liberty Media Corp., are contemplating an offer for individual TV or film assets.

"A lot of people, including me, were saying a couple of months ago that it couldn't be done -- that you couldn't find buyers for a big film studio and a big music company. But I was wrong," said Mr. Nathanson.

In Paris, people close to Vivendi Chairman Jean-Rene Fourtou cautiously welcomed Mr. Bronfman's intention to bid. The people noted that Mr. Bronfman knows the businesses well from having managed them and has a sentimental attachment to them, which might make him willing to pay more than others. Furthermore, Mr. Bronfman was on the Vivendi board when it deemed Mr. Davis's offer as too low late last year. "I'd think he would have to offer at least $22 billion, including debt, to prove his good faith," said one Vivendi executive.

Vivendi issued a statement Wednesday saying its corporate-governance committee had decided to suspend Mr. Bronfman and his father, Edgar Bronfman Sr., from the Vivendi board. The suspension appears designed to ensure that Mr. Bronfman doesn't get any unfair advantage over other bidders. Vivendi said it "verified that Mr. Edgar Bronfman Jr. does not possess any recent and substantial information concerning" the auction.

Write to John Carreyrou at john.carreyrou@wsj.com2, Martin Peers at martin.peers@wsj.com3 and Robin Sidel at robin.sidel@wsj.com4

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Cablevision down, Vivendi up on Bronfman news


Broadcasting & Cable
5/22/2003 11:14:00 AM
Cablevision Systems Corp.’s stock dipped and Vivendi Universal’s rose on news that former Seagram Co. Ltd. CEO Edgar Bronfman, Jr. was staging a bid to reclaim Vivendi’s U.S. entertainment assets.

Bronfman sold Seagram’s entertainment companies, as well as its liquor and beverage operations, to Vivendi in 2000, which ultimately led to a financial crisis for the French company.

Bronfman wants to buy the Universal Studios and USA Networks Inc. operations back, and he has lined up support from Cablevision chairman Charles Dolan and president James Dolan.

While Cablevision won’t put in any cash, it has agreed to combine its Rainbow Media Holdings Inc. cable networks with Vivendi Universal Entertainment, Vivendi’s U.S. assets.

The cash flow from those assets would allow Bronfman to borrow more to mount a $15 billion or so bid for the operation.

At the Banc of America Securities LLC media investor conference Wednesday, Cablevision vice chairman Bill Bell said only, "It's safe to say that everyone talks to everyone in this industry."

But other industry executives confirmed Cablevision’s agreement with Bronfman.