Vivendi Universal (V) shares fell more than three percent on Wednesday after Metro-Goldwyn-Mayer (MGM) withdrew from the auction of the media giant's entertainment assets, raising fears the final price would be low.

Industry watchers said the exit of one of the highest bidders for the French-American group's Universal television, film and theme park business could seriously hamper Paris-based Vivendi's attempts to get a higher price for the assets.

MGM shares jumped as much as nine percent as its investors breathed a sigh of relief that the Hollywood studio would not plunge into an expensive deal. But some industry watchers questioned whether MGM was really pulling out.

"The poker game continues. The strategies of the key players remain unclear," said BNP Paribas analyst Claire Barbaret.

"The shares were expected to dip on the news as markets usually have a knee-jerk reaction to these announcements."

In afternoon trading in Paris, Vivendi shares fell 3.72 percent to 15.53 euros. MGM shares were up 8.3 percent at $13.91 in early New York trading.

MGM on Tuesday withdrew its $11.5 billion bid for Vivendi's entertainment empire, saying the price was too high. That narrowed the list of formal bidders to four: Liberty Media (search), General Electric Co.'s (GE) NBC, Viacom (VIA) and a team led by Edgar Bronfman Jr.

One source familiar with the matter said MGM was out, but others were not so sure given MGM controlling shareholder Kirk Kerkorian's reputation as a wily dealmaker.

If MGM is out, it would be blow for the auction and could increase Vivendi's chances of pursuing a flotation either through a proposed strategic alliance with NBC or on its own.

Vivendi will report second-quarter sales on Thursday morning. Analysts polled by Reuters forecast on average that sales would fall to 6.378 billion euros ($7.27 billion) from 7.0 billion in the year-earlier period.

Low Bids

The auction has reached the second round, but Vivendi has already told bidders that offers so far are too low. Sources familiar with the sale have said Vivendi Chief Executive Jean Rene Fourtou wants more like $14 billion.

"Things seem to be coming unglued on bidding for the Vivendi entertainment assets. This will probably soften the price, but not by much," said entertainment analyst Hal Vogel.

Vivendi is selling Vivendi Universal Entertainment (VUE) to help pay down debt. VUE comprises Universal Pictures movie studio, USA and Sci Fi cable TV channels, TV production operations and theme parks.

Sources close to the bidding have told Reuters Vivendi wants to end the auction by mid-August and pick one winner with whom to negotiate a final sale.

An MGM spokesman declined to comment beyond MGM's news release. A Vivendi spokesman also declined all comment.

Two Formal Bids

MGM's withdrawal leaves only two groups with formal offers on the table. One is cable TV magnate John Malone's Liberty Media Corp., and the second is an investor group led by Edgar Bronfman, Jr.

"This doesn't change our direction in any way," said Bronfman spokesman Tod Hullin.

Also in the bidding mix are GE's NBC television network, which is proposing a merger with VUE that would leave Vivendi a major stakeholder in a new company.

Auction watchers said MGM's move might give GE a leg up due to the potential returns of merging TV broadcaster NBC with VUE.

An NBC spokeswoman declined to comment.