Malone Looks to Diller for Vivendi

Cable magnate John Malone said he has a secret weapon in the anticipated fight for control of Vivendi Universal’s entertainment assets: Barry Diller.

Malone said Thursday that his longtime association with the media mogul would give Liberty Media Co. an edge over rivals in a bidding war, citing a number of controls Diller holds over the disposal of the Universal movie studio, theme parks and television holdings.

“That’s why we’re particularly interested in these assets and may be uniquely positioned to deal on it,” Malone, Liberty’s chairman, said in a conference call with investors and analysts in which he heaped praise on Diller’s business acumen. “I have to confess, I’m in love with Diller.”

Malone and Diller are long-standing business partners. Liberty owns a 20% stake in USA Interactive, where Diller is chairman.

But Malone indicated that Diller, who has been under pressure to focus on his electronic commerce businesses, wouldn’t run a Universal operation. For that task, Malone said, he has considered tapping SKG DreamWorks co-principal Jeffrey Katzenberg, who worked with Diller at Paramount Pictures.

“Jeffrey is one of Barry’s great proteges,” Malone said. “Would I like to put money behind Jeffrey Katzenberg? You bet. Is that opportunity going to present itself? I don’t know....It has been thought of, yes.”

As part of a possible bid, Malone has considered merging DreamWorks with Universal Studios.

DreamWorks executives, however, have repeatedly denied any interest in such a scenario. “While it is very flattering to be thought highly of by someone like John Malone, the reality is Mr. Malone has not had a single conversation with any of the DreamWorks principals in years,” said DreamWorks marketing chief Terry Press.

The 9-year-old entertainment company, known for such hits as “Shrek” and “Catch Me if You Can,” is financed by Microsoft Corp. co-founder Paul Allen and owned and run by filmmaker Steven Spielberg, Katzenberg and music industry icon David Geffen.

DreamWorks and Universal have had a long-standing relationship, with Universal distributing the smaller company’s films and housing some of its executives in offices on its lot.

Although Malone didn’t say whether Liberty actually had made a bid for the properties, his comments were the clearest indication yet of Liberty’s interest in the Universal properties. Liberty would face competition from other bidders, including Viacom Inc. and an investment group headed by billionaire Marvin Davis.

“Vivendi is clearly at the top of the list of things he’d like to do,” said New York money manager Dennis Leibowitz, an investor in USA Interactive and Liberty.

Flush with cash, Englewood, Colo.-based Liberty is contemplating several possible deals to transform itself into a full-fledged media giant and avoid being classified as a mutual fund. Liberty already has stakes in several media and communications concerns, including Discovery Communications, Sprint PCS and QVC.

Liberty’s executives have expressed interest in combining its Starz Encore cable group with Universal’s USA and SciFi channels and the Universal movie studio. Liberty is said to have little interest in the music group.

Vivendi recently confirmed that it was in serious talks with Liberty and accused the company of filing a lawsuit against Vivendi to gain leverage in negotiations. Liberty claims in the suit that Vivendi and two of its former officers fraudulently lured the company into a stock swap last year.

The swap helped create Vivendi Universal Entertainment by combining Universal’s movie studio, theme parks and television holdings with the entertainment assets of USA Networks. As part of the deal, Liberty exchanged its stock in USA for a 3.6% equity stake in Vivendi Universal. Diller’s USA Interactive took a 5.4% equity stake in the joint venture.

Liberty is one of few prospective buyers with deep enough pockets to buy the Universal group, which analysts value at $10 billion to $15 billion.

For his part, Diller has been exerting pressure on Vivendi. He, too, filed a lawsuit, accusing Vivendi of reneging on a deal to pay taxes. USA Interactive recently issued a filing warning other bidders of restrictions it holds on the disposal of the USA assets, including one that could cost Vivendi hundreds of millions in deferred taxes.

Diller abruptly resigned as chairman of the Universal group in March under pressure to focus on his electronic commerce businesses.

Also Thursday, Vivendi reported that its first-quarter revenue fell 4% to $7.15 billion from the same period a year earlier, reflecting a 19% drop in recorded music and a weaker dollar. Revenue at Vivendi Universal Entertainment rose 5%, with gains in television offsetting declines at the Universal movie studio and theme parks.