PARIS – French conglomerate Vivendi Universal secured a long-coveted U.S. outlet for its vast film and TV offerings Monday with a deal worth at least $10.3 billion to buy the entertainment arm of Barry Diller's USA Networks.
Diller will take the helm of a specially created new company called Vivendi Universal Entertainment — a task he said he would do for no pay because he would enjoy it.
The veteran entertainment mogul has every reason to celebrate because he is effectively selling back to Vivendi television assets which he bought from Edgar Bronfman Jr, Vivendi's outgoing executive vice chairman, for $4.1 billion in 1997.
Meanwhile, Vivendi, the world's second-largest media company, is betting it can compete with the likes of AOL Time Warner, Walt Disney Co. and Viacom.
"This shows that our U.S. strategy is really coming together ... we are addressing our relative weakness in the U.S. market," Vivendi Chairman and CEO Jean-Marie Messier told analysts in a conference call.
End of a Major Headache
Finding a U.S. pipeline for Vivendi's entertainment assets has been a major headache for Messier since he transformed Vivendi from a utilities firm into a global media powerhouse.
Vivendi, the world's second largest media firm, said the deal would boost its earnings from next year, allaying concerns about possible dilution which had knocked its shares lower when serious talks between the two media companies emerged last week.
"The deal removes the last remaining strategic question marks hanging over Vivendi Universal, that of having a strong (distribution) presence in the United States," said Charles de Mortemart, analyst at Dexia Securities.
Messier said he expected 2002 to be a year of growth with no major changes to the company's basic structure.
He also said Vivendi was "very close" to a deal with Rupert Murdoch to buy News Corp's stake in Stream, an Italian pay-TV network with which Vivendi's Telepiu competes. Italian regulators had blocked an earlier plan for the two to merge.
A Complex Deal
The USA Networks deal involves some complex shuffling of securities, bearing all the hallmarks of Messier's background as a wizard of French investment banking.
But in an embarrassing rift, Vivendi and USA Networks could not agree in public on how much the deal was worth and some investors complained they could not understand how it worked.
USA Networks said the value to its shareholders was higher than the $10.3 billion price tag announced by Vivendi, putting it at $11.7 billion and reissuing its statement to stress this.
Vivendi stood by its own statement and put the differences down to the 30-day base period it used for pricing USA Networks shares as well as the impact of warrants attached to the deal.
"Vivendi often does deals which are extremely difficult to grasp," a Paris-based fund manager said.
Vivendi said the main plank of funding included $7 billion in stock it owns in USA Networks — effectively handing back its stake in the company in exchange for its juiciest media assets.
The new company, 93-percent controlled by Vivendi, will combine USA's cable networks, television production unit and film company with Universal Studios — Vivendi's theme parks and movie studio. USA Networks, which also has a ticketing and online transactions business, will change its name to USA Interactive.
The Universal film studio has produced such blockbusters as "Jurassic Park" and "The Mummy" while USA's entertainment assets include the SciFi Channel and hit TV series "Law & Order."
Diller, who once vowed never to work for another boss, will hold 1.5 percent of the new joint company but find himself reporting to Messier as Vivendi's top entertainment executive. He will remain head of the surviving USA Networks Interactive.
Deal With Liberty Media
Vivendi said the deal would bring it 600 million euros in additional earnings before interest, tax, depreciation and amortisation (EBITDA) in 2002.
It would also boost net income by $200 million, and free cash flow by more than $350 million in 2002.
Vivendi said the deal would be funded through exchanges of securities with just $1.62 billion paid out in cash, less than the $2 billion or more which some concerned analysts had been expecting. The cash was raised partly from the recent sale of nine percent of utility Vivendi Environnement.
Under the deal, Messier has finally forged a pact with USA Networks' other shareholder, John Malone's Liberty Media, which will become Vivendi's biggest corporate investor with a 3.6 percent stake.
Vivendi is giving Liberty 32 million treasury shares in exchange for part of its stake in USA Networks and another 5.2 million shares for its holding in a European cable joint venture with Vivendi, Multithematiques.
Messier again signalled he may be interested in forming a wider European alliance with Liberty Media, possibly in programming, and this could be a first step.
Reuters and the Associated Press contributed to this report.