Changes at Vivendi Suggest U.S. Spinoff

The script seemed fine -- until Paris called for a rewrite.

On Tuesday, sources close to media mogul Barry Diller and Paris-based Vivendi Universal said that Diller had been tapped to take on a more prominent role within the media conglomerate and serve as co-Chief Executive with Jean-Rene Fourtou.

A day later, however, the plot line changed. Those same sources said Wednesday that Fourtou and Diller were in fact temporarily teaming up to become co-CEOs of Vivendi’s U.S. entertainment division. That part of the corporation is now being rejiggered to add the lucrative games unit and Universal Music Group to Diller’s existing portfolio: Universal’s movie studio, theme parks and television properties.

“Diller’s role was unclear within Vivendi Universal yesterday and has been more well defined as of today,” a company spokeswoman said.

Representatives for Diller and Fourtou said Wednesday that the two executives had no comment.

The management change appears mutually beneficial to both men.

It expands Diller’s role as chairman of Vivendi Universal Entertainment while giving him even greater clout at Vivendi headquarters in France. And it gives Fourtou, a former pharmaceutical executive who has admitted to knowing little about the entertainment industry, the credibility he needs as he tries to sell Wall Street on the company’s future in Hollywood.

Many believe Fourtou is preparing the way for an eventual spinoff of the Universal assets into a new, publicly held company in which Vivendi would remain a major investor. There’s been speculation that Diller would run that new venture.

By combining the various businesses, Vivendi wants to make them more cohesive and palatable to investors, who have been confused by Vivendi’s far-flung assets, from mobile phone operations to water utilities and publishing.

“It just sets the stage for a spinoff of the entertainment assets,” said Paul Kim, analyst with Kaufman Bros. “It’s all about scale. If you don’t have any size it’s really tough to compete. Vivendi recognizes that they have to create more critical mass” by combining music and games with the other entertainment properties.

One of the strongest proponents of a spinoff is influential board member Edgar Bronfman Jr., whose family sold the Seagram Co. and its Universal operations to Vivendi for $34 billion in 2000, only to watch them plummet in value.

The management changes, described as temporary and unofficial, reinforce Fourtou’s recent message to shareholders that Vivendi would remain a media and entertainment company. Vivendi already has announced plans to sell the remaining stake in its 150-year-old water utility and its publishing businesses to concentrate on entertainment.

During his long career in Hollywood, Diller has earned a reputation as a headstrong manager who doesn’t always work well with others. However, Diller and Fourtou have formed a close relationship since Fourtou took the helm of Vivendi this summer.

Fourtou replaced Jean-Marie Messier, who was ousted in a boardroom coup after the company’s stock fell 70% amid concerns about its $19 billion in media debt. That piled up during a three-year buying spree, which included the acquisition of Universal Studios.

Shares of Vivendi fell 58 cents to $12.02 on the New York Stock Exchange.