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07-23-2003, 09:14 AM
Bidding race is on to snap up Vivendi assets
French conglomerate has its pick of diverse offers, from media moguls to billionaires
By David Lieberman
USA TODAY
The biddersNEW YORK -- When executives at Vivendi Universal made plans to release a movie this weekend about legendary racehorse Seabiscuit, they had no way of knowing that they'd be in the middle of the most thrilling corporate horse race Hollywood has seen in years.
At least six of media's shrewdest dealmakers are straining to come in first as the French water, telecommunications and entertainment giant auctions off Universal Studios and USA Networks. The properties include some of show business' most coveted film, TV, theme park and cable programming assets.
MGM's Kirk Kerkorian, Liberty Media's John Malone, NBC's Bob Wright, Viacom's Sumner Redstone, former Seagram chief Edgar Bronfman Jr. and oil billionaire Marvin Davis have good reason to crave this victory cup. Major movie studios and nationally distributed cable channels rarely come up for sale, particularly together, because ''They're irreplaceable assets,'' says McKinsey & Co.'s Michael Wolf.
''Films continue to be the backbone of most television networks and stations here and around the world. That alone is incredibly valuable. And cable networks have been strong growth engines as viewership has shifted from broadcast to cable.''
Vivendi probably will decide in September which offer, if any, it will accept from among the diverse bids for the properties collectively known as Vivendi Universal Entertainment (VUE). Most experts value VUE at more than $11 billion. Some analysts say the price could go as high as $15 billion. Vivendi owns about 86% of VUE; Japan's Matsushita, 7%; and Barry Diller's InterActiveCorp (formerly USA Interactive), 5.5%. Diller personally holds 1.5%.
Paris-based Vivendi is selling because it has been in a cash crunch for more than a year. Former CEO Jean-Marie Messier's effort to turn Vivendi into the world's No. 3 entertainment giant left it with $42.6 billion in debt at the end of 2001. Messier was ousted last July, and his successor, Jean-Rene Fourtou, whittled the debt to $13.8 billion at the end of 2002.
By most accounts, Fourtou has done a masterful job of handling the VUE auction. He has held out the option of not selling or of spinning off the properties.
''Fourtou is a smart cookie. What (he's) saying to the bidders is, 'Don't think we're desperate,' '' says Smith Barney analyst Patrick Wellington. But he notes that Fourtou and company have ''admitted they have no aspiration to run the U.S. entertainment businesses, which don't add anything from the French perspective.''
Any deal will be complicated. What bidders propose:
MGM
Many observers say billionaire Kerkorian, whose investment company Tracinda owns about 80% of MGM, is the one to beat if he doesn't overplay his hand.
He and allies Providence Equity Partners, Morgan Stanley and Bank of America are offering as much as $11.5 billion in cash or, if Vivendi prefers, 80% cash and a 20% stake in the post-acquisition company.
If successful, it would be the lion eating an elephant. Last year, money-losing MGM generated $1.7 billion in revenue vs. $7.2 billion for VUE.
Indeed, many in Hollywood assumed that MGM would have to hang up a ''for sale'' sign after the studio finished 2002 in 10th place with 4% of the box office market share. Disappointing results from Windtalkers and Crocodile Hunter offset the successes of Barbershop and the James Bond flick Die Another Day.
But Kerkorian is betting a deal with Vivendi is just what Leo the Lion needs to roar again. The merged operations would house the world's biggest film library -- and 45% of all color films -- with MGM's 4,000 titles and Universal's 1,500.
That, plus new movie and TV productions, could provide a deep reservoir of programming for USA Networks.
MGM could use its new muscle to get good prices from TV stations around the world that want to air the studio's wares. Kerkorian also figures he can slash more than $300 million in costs by eliminating duplication.
But it's unclear whether Vivendi would be comfortable with MGM's management if the French company wants to keep a stake in entertainment properties.
Liberty Media
It would be foolish to underestimate Chairman Malone. The media dealmaker turned Tele-Communications Inc. into the No. 1 cable operator, sold it to AT&T, then amassed a portfolio of investments in giants including News Corp., AOL Time Warner and Viacom. He now controls 3% of Vivendi's stock and 20% of Diller's InterActiveCorp -- and could use an operation like VUE.
The studio would help Liberty turn its Starz Encore premium cable unit into a more potent rival to HBO. It also would help Malone build a coherent business out of his investments in programmers including Discovery Communications, Court TV and Game Show Network. Liberty's stock, in turn, would become more attractive to Wall Street. Many still look at the company as just a portfolio of investments.
The terms of Malone's offer aren't known. And it's unclear whether Malone can keep up with rival bidders after his agreement this month to pay $7.9 billion for the other 57.5% of home-shopping giant QVC that Liberty did not own.
That deal worries Moody's Investors Service. It's reviewing Liberty's investment-grade credit rating for a possible downgrade. The QVC deal could force Liberty to increase its borrowing by $5 billion.
Still, several analysts say Malone has the resources to handle QVC and Vivendi. Liberty has $5 billion in cash and more than $10 billion in non-core assets, according to Morgan Stanley.
Even if Malone has the resources to buy VUE, it's unclear whether he's prepared to pay up. He's famous for devising complicated deals that slash his tax liabilities.
''John Malone is loath to overpay, and Vivendi wants a clean deal with the highest cash possible,'' says Lehman Bros.' Julien Roch.
NBC
The General Electric-owned network is a wild card and has the most potential to rock the media business. It isn't offering cash. Instead, it hopes Vivendi's finances have improved enough that it would prefer to own a chunk of a huge new network-studio combination that could rival Disney-ABC, Viacom's Paramount-CBS, and News Corp.'s movie and TV operations at Fox.
The studio already produces NBC's most reliable franchise, Dick Wolf's Law & Order, Law & Order: SVU and Law & Order: Criminal Intent as well as his Crime & Punishment. In addition, Universal makes NBC's acclaimed nostalgic drama, American Dreams, and Coupling, one of few fall sitcoms generating much buzz.
NBC also could use an alliance to profit from the shows it airs when reruns are sold. This fall, NBC will own a stake in just 42% of its prime-time shows vs. 50% each for ABC and Fox and 85% for CBS.
Meanwhile, USA Networks would complement NBC's cable properties, which are heavy on news, with MSNBC and CNBC, but light on entertainment, aside from highbrow Bravo.
These opportunities to improve NBC's strategic position could be particularly important to Wright as he looks ahead to a fall 2004 season without longtime hits Friends, Frasier and ER.
If Vivendi is interested in a non-cash deal -- a big ''if'' -- a lot of details would have to be negotiated. Would Vivendi own notes or stock in a merged entity? If equity, how much? The going assumption is that it would get about 40%.
Less clear is how Vivendi might cash out. Would the entertainment company go public? Or would Vivendi be able to swap its stake for shares in GE?
Viacom
Here's another option filled with mystery.
CEO Redstone has simply told Vivendi that he's interested in the USA Networks channels. Sci-Fi Channel and Trio would complement his tightly focused networks led by MTV, VH-1, Nickelodeon, Comedy Central, TV Land and Spike (a men's channel built from TNN).
The offer might seem a non-starter: Vivendi has shown little interest in splitting its popular cable properties from the package. But some people close to the negotiations say they wouldn't be surprised if Viacom, with its foot in Vivendi's door, changes everything by making an offer for all of VUE.
Another much-speculated-on possibility is that Viacom might team with someone else -- for example, Diller -- who'd take the studio and theme parks.
There's logic to that. Diller needs a partner if he wants to participate in the bidding. He signed a stand-still agreement that precludes him from going after VUE. And Viacom probably can't get the cable channels it wants without Diller. If Vivendi breaks up VUE, then Diller's company would be saddled with huge tax liabilities that he has vowed to challenge.
Bronfman
His effort to regain control of the entertainment properties he sold to Vivendi in 2000 makes him the most intriguing bidder.
He got the financial wherewithal to bid by cobbling together alliances with Cablevision Systems, Thomas H. Lee Partners, the Blackstone Group, Wachovia Securities and Merrill Lynch.
Cablevision agreed to throw in three channels -- American Movie Classics, the Independent Film Channel and WE: Women's Entertainment -- in exchange for about a third of Bronfman's venture. The others would provide debt or private equity.
Bronfman says he knows VUE best. Indeed, he hired most of its key executives. He and his father are known and respected at Vivendi. They are board members but have agreed not to participate until the auction, or at least their role in it, is settled.
But outsiders doubt Bronfman & Company's ability to pull it off.
''It's not realistic,'' says Sanford C. Bernstein's Michael Nathanson. ''They'll never be able to create the cost synergies that others can, and therefore can't outbid them.''
Davis
Vivendi early this month rejected the initial offer for VUE from the man who sold Fox to Rupert Murdoch. Vivendi executives are said to find the other bids more appealing. His allies say he could be back in if he's willing to pony up more cash and that he's mulling that option.
He can't afford to wait much longer, though. The race is on.
French conglomerate has its pick of diverse offers, from media moguls to billionaires
By David Lieberman
USA TODAY
The biddersNEW YORK -- When executives at Vivendi Universal made plans to release a movie this weekend about legendary racehorse Seabiscuit, they had no way of knowing that they'd be in the middle of the most thrilling corporate horse race Hollywood has seen in years.
At least six of media's shrewdest dealmakers are straining to come in first as the French water, telecommunications and entertainment giant auctions off Universal Studios and USA Networks. The properties include some of show business' most coveted film, TV, theme park and cable programming assets.
MGM's Kirk Kerkorian, Liberty Media's John Malone, NBC's Bob Wright, Viacom's Sumner Redstone, former Seagram chief Edgar Bronfman Jr. and oil billionaire Marvin Davis have good reason to crave this victory cup. Major movie studios and nationally distributed cable channels rarely come up for sale, particularly together, because ''They're irreplaceable assets,'' says McKinsey & Co.'s Michael Wolf.
''Films continue to be the backbone of most television networks and stations here and around the world. That alone is incredibly valuable. And cable networks have been strong growth engines as viewership has shifted from broadcast to cable.''
Vivendi probably will decide in September which offer, if any, it will accept from among the diverse bids for the properties collectively known as Vivendi Universal Entertainment (VUE). Most experts value VUE at more than $11 billion. Some analysts say the price could go as high as $15 billion. Vivendi owns about 86% of VUE; Japan's Matsushita, 7%; and Barry Diller's InterActiveCorp (formerly USA Interactive), 5.5%. Diller personally holds 1.5%.
Paris-based Vivendi is selling because it has been in a cash crunch for more than a year. Former CEO Jean-Marie Messier's effort to turn Vivendi into the world's No. 3 entertainment giant left it with $42.6 billion in debt at the end of 2001. Messier was ousted last July, and his successor, Jean-Rene Fourtou, whittled the debt to $13.8 billion at the end of 2002.
By most accounts, Fourtou has done a masterful job of handling the VUE auction. He has held out the option of not selling or of spinning off the properties.
''Fourtou is a smart cookie. What (he's) saying to the bidders is, 'Don't think we're desperate,' '' says Smith Barney analyst Patrick Wellington. But he notes that Fourtou and company have ''admitted they have no aspiration to run the U.S. entertainment businesses, which don't add anything from the French perspective.''
Any deal will be complicated. What bidders propose:
MGM
Many observers say billionaire Kerkorian, whose investment company Tracinda owns about 80% of MGM, is the one to beat if he doesn't overplay his hand.
He and allies Providence Equity Partners, Morgan Stanley and Bank of America are offering as much as $11.5 billion in cash or, if Vivendi prefers, 80% cash and a 20% stake in the post-acquisition company.
If successful, it would be the lion eating an elephant. Last year, money-losing MGM generated $1.7 billion in revenue vs. $7.2 billion for VUE.
Indeed, many in Hollywood assumed that MGM would have to hang up a ''for sale'' sign after the studio finished 2002 in 10th place with 4% of the box office market share. Disappointing results from Windtalkers and Crocodile Hunter offset the successes of Barbershop and the James Bond flick Die Another Day.
But Kerkorian is betting a deal with Vivendi is just what Leo the Lion needs to roar again. The merged operations would house the world's biggest film library -- and 45% of all color films -- with MGM's 4,000 titles and Universal's 1,500.
That, plus new movie and TV productions, could provide a deep reservoir of programming for USA Networks.
MGM could use its new muscle to get good prices from TV stations around the world that want to air the studio's wares. Kerkorian also figures he can slash more than $300 million in costs by eliminating duplication.
But it's unclear whether Vivendi would be comfortable with MGM's management if the French company wants to keep a stake in entertainment properties.
Liberty Media
It would be foolish to underestimate Chairman Malone. The media dealmaker turned Tele-Communications Inc. into the No. 1 cable operator, sold it to AT&T, then amassed a portfolio of investments in giants including News Corp., AOL Time Warner and Viacom. He now controls 3% of Vivendi's stock and 20% of Diller's InterActiveCorp -- and could use an operation like VUE.
The studio would help Liberty turn its Starz Encore premium cable unit into a more potent rival to HBO. It also would help Malone build a coherent business out of his investments in programmers including Discovery Communications, Court TV and Game Show Network. Liberty's stock, in turn, would become more attractive to Wall Street. Many still look at the company as just a portfolio of investments.
The terms of Malone's offer aren't known. And it's unclear whether Malone can keep up with rival bidders after his agreement this month to pay $7.9 billion for the other 57.5% of home-shopping giant QVC that Liberty did not own.
That deal worries Moody's Investors Service. It's reviewing Liberty's investment-grade credit rating for a possible downgrade. The QVC deal could force Liberty to increase its borrowing by $5 billion.
Still, several analysts say Malone has the resources to handle QVC and Vivendi. Liberty has $5 billion in cash and more than $10 billion in non-core assets, according to Morgan Stanley.
Even if Malone has the resources to buy VUE, it's unclear whether he's prepared to pay up. He's famous for devising complicated deals that slash his tax liabilities.
''John Malone is loath to overpay, and Vivendi wants a clean deal with the highest cash possible,'' says Lehman Bros.' Julien Roch.
NBC
The General Electric-owned network is a wild card and has the most potential to rock the media business. It isn't offering cash. Instead, it hopes Vivendi's finances have improved enough that it would prefer to own a chunk of a huge new network-studio combination that could rival Disney-ABC, Viacom's Paramount-CBS, and News Corp.'s movie and TV operations at Fox.
The studio already produces NBC's most reliable franchise, Dick Wolf's Law & Order, Law & Order: SVU and Law & Order: Criminal Intent as well as his Crime & Punishment. In addition, Universal makes NBC's acclaimed nostalgic drama, American Dreams, and Coupling, one of few fall sitcoms generating much buzz.
NBC also could use an alliance to profit from the shows it airs when reruns are sold. This fall, NBC will own a stake in just 42% of its prime-time shows vs. 50% each for ABC and Fox and 85% for CBS.
Meanwhile, USA Networks would complement NBC's cable properties, which are heavy on news, with MSNBC and CNBC, but light on entertainment, aside from highbrow Bravo.
These opportunities to improve NBC's strategic position could be particularly important to Wright as he looks ahead to a fall 2004 season without longtime hits Friends, Frasier and ER.
If Vivendi is interested in a non-cash deal -- a big ''if'' -- a lot of details would have to be negotiated. Would Vivendi own notes or stock in a merged entity? If equity, how much? The going assumption is that it would get about 40%.
Less clear is how Vivendi might cash out. Would the entertainment company go public? Or would Vivendi be able to swap its stake for shares in GE?
Viacom
Here's another option filled with mystery.
CEO Redstone has simply told Vivendi that he's interested in the USA Networks channels. Sci-Fi Channel and Trio would complement his tightly focused networks led by MTV, VH-1, Nickelodeon, Comedy Central, TV Land and Spike (a men's channel built from TNN).
The offer might seem a non-starter: Vivendi has shown little interest in splitting its popular cable properties from the package. But some people close to the negotiations say they wouldn't be surprised if Viacom, with its foot in Vivendi's door, changes everything by making an offer for all of VUE.
Another much-speculated-on possibility is that Viacom might team with someone else -- for example, Diller -- who'd take the studio and theme parks.
There's logic to that. Diller needs a partner if he wants to participate in the bidding. He signed a stand-still agreement that precludes him from going after VUE. And Viacom probably can't get the cable channels it wants without Diller. If Vivendi breaks up VUE, then Diller's company would be saddled with huge tax liabilities that he has vowed to challenge.
Bronfman
His effort to regain control of the entertainment properties he sold to Vivendi in 2000 makes him the most intriguing bidder.
He got the financial wherewithal to bid by cobbling together alliances with Cablevision Systems, Thomas H. Lee Partners, the Blackstone Group, Wachovia Securities and Merrill Lynch.
Cablevision agreed to throw in three channels -- American Movie Classics, the Independent Film Channel and WE: Women's Entertainment -- in exchange for about a third of Bronfman's venture. The others would provide debt or private equity.
Bronfman says he knows VUE best. Indeed, he hired most of its key executives. He and his father are known and respected at Vivendi. They are board members but have agreed not to participate until the auction, or at least their role in it, is settled.
But outsiders doubt Bronfman & Company's ability to pull it off.
''It's not realistic,'' says Sanford C. Bernstein's Michael Nathanson. ''They'll never be able to create the cost synergies that others can, and therefore can't outbid them.''
Davis
Vivendi early this month rejected the initial offer for VUE from the man who sold Fox to Rupert Murdoch. Vivendi executives are said to find the other bids more appealing. His allies say he could be back in if he's willing to pony up more cash and that he's mulling that option.
He can't afford to wait much longer, though. The race is on.