Two Bidders Left for Universal

Liberty Media Corp. became the latest bidder to pull out of the auction for Vivendi Universal’s entertainment assets Monday, on the eve of a critical board meeting that could narrow the field of contenders.

Moving into the final stages of a marathon auction process, Vivendi’s management team is scheduled to present two offers to its board today and weigh whether to enter into an exclusive negotiation with one of the remaining suitors: General Electric Co.’s NBC, widely viewed as the favorite, and a consortium led by Vivendi Vice Chairman Edgar Bronfman Jr.

However, sources close to Vivendi said the board meeting could close without a clear outcome, postponing a process that has already been heavily criticized for being chaotic. Any further delay could be a gamble for Vivendi, as the two remaining suitors are expecting a clear signal today on the company’s intentions.

The uncertainly is one reason why Liberty moved Monday to clarify its position for its shareholders.

An early front-runner in the contest, Liberty receded from the lead last month, after agreeing to purchase control of QVC, the popular home-shopping cable network, for $7.9 billion. Though Liberty insisted as recently as last week that it continued to be interested in the Vivendi assets, some investors worried that doing both transactions could strain Liberty’s credit rating.

Liberty, like the three other suitors that have withdrawn from the auction -- Comcast Corp., Metro-Goldwyn-Mayer Inc., and a group led by oil titan Marvin Davis -- considered Vivendi’s $14-billion asking price too steep. Liberty, which is controlled by John Malone, did not come close to meeting Vivendi’s price demands in a second round of bids last week.

“The synergy opportunities with our other businesses are not sufficient to support the expected transaction value,” Robert Bennett, Liberty president and CEO, said in a statement Monday.

Industry observers say Malone remained active in the auction partly to spur the perception of a bidding war -- a tactic designed to protect Liberty’s 3.6% equity interest in Vivendi Universal.

Vivendi Chief Executive Jean-Rene Fourtou, however, was not eager to sell to Malone after Liberty sued the company this year, according to several people close to the negotiations. Liberty alleged that Vivendi misled investors about its financial position before plunging to near-bankruptcy under the weight of debt.

In recent weeks, NBC emerged as the most likely to land the deal, although a consortium led by Bronfman has been working overtime in recent days to buy back the assets his family once owned.

Unlike NBC’s offer, Bronfman’s bid includes a huge cash component that the French giant has been seeking to pay down its towering debt.

Vivendi’s management, however, is enamored of a merger proposed by NBC in part because of the cachet of such a blue-chip partnership. Under this plan, Vivendi would cash out over time.

The offers pose a stark choice for Paris-based Vivendi: take the money now or postpone its exit from Hollywood in exchange for a potentially bigger payday down the line.

In another setback Monday, Vivendi disclosed that the Internal Revenue Service was seeking $1.5 billion in taxes, plus interest, related to a 1995 sale of DuPont Co. stock by Seagram Co. The dispute, which the company disclosed in April, stems from the accounting treatment of 156 million shares in DuPont sold by Seagram in 1995 for $8.8 billion.

Vivendi acquired the potential tax liability as part of its 2000 purchase of Seagram, the owner of the Universal Studios, theme parks and three cable channels that are now up for sale. Edgar Bronfman Jr. and his family, which at the time controlled Seagram, sold the DuPont stock to help finance an entry into the entertainment and music industries.

Vivendi said Monday that it planned to contest the IRS’s claim in U.S. Tax Court. “Vivendi Universal continues to believe that the tax treatment is fully compliant with U.S. tax laws in force at the time,” Vivendi said in a statement Monday.

Even so, the timing is bad for Vivendi, which doesn’t want any further complications to cloud its planned sale of the entertainment assets.