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Old June 4th, 2003, 05:36 AM   #30
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Vivendi Universal Vows Assets Won't Go Cheap
Tue Jun 3,10:24 PM ET

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By Georg Szalai

NEW YORK (Hollywood Reporter) - Vivendi Universal is happy with the level of interest in its entertainment assets but will not sell them at fire-sale prices after having strengthened its financial profile in recent months, chief financial officer Jacques Espinasse said here Tuesday.

In what some observers described as a warning to potential acquirers not to submit low-ball bids, Espinasse said the company is keeping open the option of a spinoff of its Vivendi Universal Entertainment operation in an initial public offering should the conglomerate fail to receive satisfying offers.

The executive spoke at the Deutsche Bank Securities Media Conference just as the divestiture process is moving into its final phase.

Saying Vivendi already has wrapped up about $9 billion of a planned $16 billion in asset sales, the executive said the company has strengthened its balance sheet enough to hold out for a good offer.

"Cash is not our problem anymore," he said. "We are -- as you say in America -- over the hump."

He went on to describe the expression of interest from the different parties as "quite strong."

As a result, Vivendi now has the time, the organized process and the competition among bidders that is necessary to fetch a "a very good price" for its entertainment properties, Espinasse said.

Vivendi this week is scheduled to wrap up its management presentations to potential bidders for its film, TV, music and theme park businesses. Interested parties include Viacom Inc., NBC, John Malone's Liberty Media, oil billionaire Marvin Davis and a consortium led by Edgar Bronfman Jr.

The potential bidders have been mum in recent days as they further evaluate Vivendi's businesses and their options.

Sources familiar with the situation said Bronfman has in recent days continued discussions with private equity firms to join him, Cablevision Systems and financial services firms Wachovia Securities and Merrill Lynch in a broad-based bid for Vivendi Uni's entertainment assets.

Davis and Bronfman have expressed an interest in Vivendi Universal Entertainment (VEU) and the separately organized Universal Music Group, while Liberty has focused its interest on VUE. Viacom and NBC, meanwhile, are looking to acquire Vivendi's TV operations, which include cable TV networks Sci Fi and the USA Network.

Bidders also differ in their interest in Vivendi's theme park and video game units, Espinasse said Tuesday.

Overall, the executive echoed that not only do different players have different interests, but that different deals would also have different tax and regulatory implications, which Vivendi Uni will take into account when weighing bids.

Espinasse also said investors have sometimes overemphasized the tax liabilities given that they are negligible if Vivendi Uni plays its cards right.

"If we do it in a stupid way, that is true," he said when asked about a $2 billion tax obligation that could be triggered by a VUE sale. "But if we do it smartly, it is completely wrong."

For example, he reiterated that certain scenarios, previously described by sources, can circumvent tax payments, particularly an outright sale of VUE in its entirety.

This scenario could even be followed for the short term to pull off a smaller transaction without negative effects, Espinasse said.

"If we sell to someone interested in just the TV assets, we could (sell them all of VUE and then) buy back the theme parks and studios," he explained, indirectly confirming a scenario that Wall Street observers have been discussing.

Espinasse also once again rejected a claim by USA Interactive and its CEO, Barry Diller, former head of VUE, that Vivendi Uni must pay them as much as $620 million in tax obligations.

Describing the claims as a negotiation tool in the current sales process, Espinasse said: "We have quite the ability to resist, and so we are resisting."

He also said a $400 million tax obligation can be triggered if Vivendi Uni sells all of VUE and UMG at the same time before Dec. 31, 2005, based on the merger agreement between Vivendi Uni and Seagram, formerly led by Bronfman.

While Vivendi management has previously never commented on this tax issue, Espinasse hinted Tuesday that a sale of both assets to the same bidder could simply be completed with a time delay.

Similarly, Vivendi Uni could hang on to UMG for another year and a half, he said.

Wall Street observers have suggested that Bronfman could offer to take care of these tax liabilities if he wins the bidding war.

Vivendi management, meanwhile, has been positively surprised by the entertainment assets' operating momentum at a time of divestiture talks, Espinasse said in plugging the conglomerate's financial performance.

For example, recent film release "Bruce Almighty" has already taken in more than twice the boxoffice receipts that Vivendi Uni had budgeted, he explained.

Vivendi shares have performed strongly since chairman and CEO Jean-Rene Fourtou publicly admitted last month that he was looking to sell the entertainment operations. Investors and analysts seem to be satisfied with the way Vivendi Uni has moved ahead and managed the sales process.

In Paris trading, shares of Vivendi Uni fell 0.5% on Tuesday to 15.85. American depositary shares fell 0.2% to 18.56.
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