Vivendi in Talks to Buy Back USA Networks’ Media Group

Vivendi Universal Chief Executive Jean-Marie Messier said Tuesday that he is in serious talks with Hollywood mogul Barry Diller to buy USA Networks’ entertainment division.

For Vivendi, the world’s second-largest media company, the move is an attempt to mollify U.S. analysts and investors who have faulted the company for its lack of a U.S. outlet for the company’s movie and television properties.

Messier, who recently moved to Manhattan, also has been trying to play a more visible role in managing the day-to-day affairs of Vivendi, which was created a year ago when the French communications and utility company bought Seagram and its Universal film studios, theme parks and record labels.

Through a complex series of transactions, the proposed deal would give Vivendi the rights to control programming on USA, essentially returning to Universal Studios the television assets sold in 1997 by outgoing Executive Vice Chairman Edgar Bronfman Jr. to Diller for about $4.1 billion.

Although Vivendi already owns 41% of USA, the company does not manage the media group, which is controlled by Diller. USA Networks, which includes the USA Cable Network and Sci-Fi Channel, produces television shows such as the NBC series “Law and Order” and made-for-TV movies through Studios USA.

Messier said talks were in an “advanced stage” but cautioned that a deal was several weeks away and that the “discussions may not lead to an acquisition.”

“It’s fair to say that such a transaction would clearly be an answer to this lack of distribution,” Messier said. “Integrating USA’s cable TV and movie assets with Universal Studios’ assets would create one new U.S. major [player] in that field.”

An added complication to any deal is that Liberty Media Corp., which owns a 21% stake in USA and is controlled by cable mogul John Malone, has rights to veto certain transactions.

Buying USA’s entertainment division is just the latest effort by Messier to strengthen Vivendi’s presence in the U.S. Earlier this year the company acquired independent book publisher Houghton Mifflin for $1.7 billion and music downloading Web site MP3.com Inc. for $372 million.

Under one scenario, Diller would retain control of USA’s Internet-related assets, including Ticketmaster, Home Shopping Network and CitySearch. USA Networks has become the second-largest e-commerce retailer after EBay Inc. The deal with Vivendi would give Diller cash to further expand his Internet properties while values are cheap, targeting such sites as Homestore.com and Monster.com

Analysts were not surprised by the negotiations, noting that Messier indicated his interest in forging stronger ties with USA at a conference in New York last week. They said the purchase could put Vivendi on a more competitive footing with rivals such as AOL Time Warner, Viacom and Walt Disney Co. that use cable and television holdings to promote their movies and products across several outlets.

“If they’re buying the networks outright, it certainly gives USA more cash and gives Vivendi more of a direct presence in the U.S., which is meaningful to investors,” Merrill Lynch analyst Jessica Reif Cohen said. “It’s a step in the right direction.”

Mark Harrington, an analyst with J.P. Morgan in London, said the proposed purchase would complete one of the “missing links in their global strategy and now brings them one step closer to AOL Time Warner.”

Messier said there are many “obvious synergies” between USA and Vivendi Universal’s film and television businesses, which includes Canal Plus, Europe’s leading pay TV company with more than 15 million subscribers. And he said the acquisition also would improve Vivendi’s leverage in negotiating contracts with cable operators.

Messier would not say how much Vivendi would pay in the deal, but said the deal would not result in the creation of new Vivendi shares. A source close to the talks said Vivendi was negotiating to pay in the $10-billion-to-$12-billion range, in a mix of stock and cash. USA Networks has a market capitalization of $18.5 billion.

Vivendi could sell part of its 22% stake in Britain’s leading pay-TV operator, BskyB, to help pay for the possible acquisition of USA Networks’ entertainment division, a source familiar with the negotiations said.

Messier also dismissed speculation that Bronfman’s resignation last week was related to the decision to buy back assets that he sold to Diller.

“Edgar has been informed from Day One of all the discussions with Barry and he was very much supportive,” Messier said.

Bronfman, the Seagram liquor scion who bet his family’s fortune buying Universal Studios Inc. before selling it last year to Vivendi, cut his day-to-day ties to the entertainment business last week, saying he wants to eventually manage his own company again.

Vivendi’s American depositary shares dropped $1.20 to close at $50.60 in trading Tuesday on the New York Stock Exchange. USA Networks shares rose $1.10, nearly 5%, to close at $25.05 on the Nasdaq Stock Market.

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Times staff writers Sallie Hofmeister, Claudia Eller and James Bates contributed to this report.