[peter noble]

Bid for all or nothing, Vivendi tells buyers

Fri June 20, 2003 06:57 AM ET
By Merissa Marr

LONDON, June 20 (Reuters) - Learning from past blunders, media giant Vivendi Universal has told potential buyers for its U.S. entertainment empire to bid for everything or not bother, sources familiar with the sale said on Friday.

Many suitors will obligingly put in bids for the Hollywood studio, cable television channels and theme parks by the deadline on Monday to keep their hand in the process, even if they are only interested in cherry picking individual assets.

However, it is not clear if bidders like media giant Viacom, which is only interested in the cable TV business but does not see it as a "must-have", will bid at all in the first round and may hold their fire until later in the process.

Vivendi is selling Vivendi Universal Entertainment (VUE) -- which comprises Hollywood's Universal Studios, cable television channels USA and Sci Fi, and the Universal theme parks -- to cut its debts after coming close to collapse last year.

Vivendi told investors this week it had singled out six potential buyers. It did not elaborate on who they were but they are believed to be: oil billionaire Marvin Davis, the former owner of the assets Edgar Bronfman Jr, General Electric GE.N , Metro-Goldwyn-Mayer MGM.N , Liberty Media L.N and Viacom.

With some bidders expected to team up, the auction is still seen as an open field with no clear front runner. What Vivendi will get for the assets is also an open question. However, Davis kicked off the bidding last year with a $15 billion offer.


FIRST ROUND PLAYERS

While some bidders may play it cool at the start, being a first round player is important for some of the contenders.

MGM, for example, needs a deal like this to get back into the Hollywood big league.

By contrast, Viacom -- which already owns Paramount Studios, the CBS television network and MTV networks -- can afford to wait and either team up with another bidder later or indicate its interest separately after the first round.

Despite Vivendi's demand for full bids only, bankers said the group may be forced to consider offers for single assets.

"Invariably they will get letters from some of the powerful bidders saying: "we're only interested in the cable channels"," said one media banker.

"If they're interested in maximising value, you always wants to put the pieces out separately because people who want the individual pieces will value them higher -- unless there is some egregious tax basis problem of breaking it up".

That problem could be Barry Diller.

Veteran Hollywood executive Diller, who stepped down as the head of VUE earlier this year, told Reuters in an interview on Thursday his company USA Interactive USAI.O could block Vivendi from selling the entertainment unit in pieces.

USA Interactive, which has changed its name to InterActiveCorp, owns a stake in VUE worth around $2 billion.

Diller said he would not take part in the auction but will invariably have to deal with the winning bidder and has shown an interest in Universal studios in the past.


BIDS FOR THE LOT

An obvious partner for Diller is cable king John Malone.

Malone, who heads Liberty Media, has openly said he is interested in VUE but has said he is not working with Diller.

Like Viacom, GE -- parent of NBC -- is also seen as a less enthusiastic bidder compared to the likes of Bronfman or Davis. Neither Viacom nor GE have advisers on the sale, sources say.

Bronfman, whose family once owned the Universal assets, could be a strong runner. He knows the business and is expected to bid for VUE plus the music division Universal Music and may also pitch for the computer games business.

His problem could be funding, although he already has some big names like Thomas H Lee on board, sources say.

Similarly, Davis is bidding for VUE plus music. However, he is seen as a frontman for former Universal CFO Brian Mulligan.