Vivendi Seeking Alliance With Liberty Media

Vivendi Universal officially announced its plan to buy the entertainment division of USA Networks Inc. on Monday and, in a further sign of the French company’s global aspirations, said it aims to form a television alliance with John Malone’s Liberty Media Corp.

“We have a common goal: to bring together an alliance in Europe,” Vivendi Chief Executive Jean-Marie Messier told analysts in a conference call. “What we have in mind is to look at ways to integrate all of our European programming and create a very powerful entity.”

The two companies are discussing ways of producing television programs for their European satellite and cable businesses, Messier said. Liberty declined to comment on the alliance.

Liberty, based in Englewood, Colo., has been aggressively buying up cable systems in Europe, most recently cable networks of Deutsche Telekom. Vivendi already owns Europe’s biggest pay-TV company, Canal Plus.

Liberty, which is a large shareholder in USA, would become a major shareholder in Vivendi under the complicated terms of the acquisition.

The partnership with Liberty is the third strategic move in a week for Vivendi. In addition to the USA purchase, Vivendi revealed an agreement Friday to buy an 11% stake in U.S. satellite television provider EchoStar Communications Corp.

Messier discussed the new relationship with Liberty as he announced the terms of Vivendi’s acquisition of USA Networks’ entertainment assets, which include the USA cable network, the Sci Fi Channel and the company’s television and production units.

As expected, Vivendi said it will pay $10.3 billion for the assets. They would be combined with Universal Studios’ film operations, international television group and theme parks but not its publishing or music businesses. Under the deal, Universal would buy back many of the assets that it sold to USA in 1998 for one-third of the price.

The USA, EchoStar and Liberty deals are the latest moves by Messier to compete with AOL Time Warner Inc., Walt Disney Co. and Viacom Inc. Although Vivendi is Europe’s largest media company and owns one of the most successful studios in Hollywood, it has been hampered by a lack of cable and television outlets for its movies and television.

The USA combination makes Vivendi “a new U.S. major, a tier-one player,” Messier said. He liked the term so much that during negotiations, all parties used the code name “Tier One” to refer to the deal.

According to Messier, the deal will increase Vivendi’s earnings before interest, depreciation and amortization by 10% beyond the previous 2002 target.

Analysts said Vivendi paid a fair price for USA and that the recent developments could move Vivendi closer to the U.S. media giants.

“He’s building an entertainment empire,” said Jeffrey Logsdon of Gerard Klauer Mattison.

“Vivendi has held ambitions to be a global media giant, but the missing piece of the puzzle was the distribution, and this helps plug the gap,” said George Nichols, a media analyst with Morningstar Inc. in Chicago.

But Nichols and other analysts said it remains an open question how well Messier would get along with Hollywood mogul Barry Diller, who controls USA Networks and would head the new venture. “There could be a clash of egos here,” Nichols said.

The two companies gave different purchase prices based on different valuation methods.

Vivendi said the deal was worth $10.3 billion, and USA Networks listed the value at $11.67 billion, according to a Securities and Exchange Commission filing Monday.

Part of the explanation, Messier said, is that Vivendi decided to deduct $800 million in warrants that it gets from USA. The warrants give Vivendi the right to buy an additional 12% stake in the remaining businesses of USA.

Diller said it was not unusual for companies to list different prices.

The new venture would be called Vivendi Universal Entertainment and would have a worth of about $20 billion. Vivendi would own 93%, USA 5.5% and Diller 1.5%.

The remaining assets of USA would form a company to be called USA Interactive, a collection of online transactions businesses such as Ticketmaster, Expedia and Hotel Reservations Network. Vivendi would keep a 12% stake, along with the warrants for another 12%.

Of the $10.3-billion purchase, Vivendi would pay USA $1.62billion in cash and return to the company about $7billion worth of USA stock.

Vivendi also would give Liberty Media about $1.65 billion worth of stock in a complex swap that would give Liberty a 3.6% stake in Vivendi--making it one of the company’s largest shareholders. In exchange, Vivendi would get Liberty’s USA shares and its 27% stake in the European cable television company Multithematiques.

“The wisdom in this transaction is to take the entertainment assets of USA and put them together with Vivendi’s so they can operate on a real scale and be competitive,” Diller said.

USA would use the cash from the sale to help expand its transaction business. Diller said he will divide his time between both businesses.

Both Messier and Diller sought to allay fears that they would have trouble getting along. After leaving the helm of Fox Inc., Diller made it clear he had no desire to work for anyone else.

“I think it’s going to be easy to work because our relationship is based on two things: trust and respect,” Messier said.

Asked how he felt about working for Messier, Diller said, “It seems to be an issue of everyone else’s, not mine.”

Among the management changes, Pierre Lescure would remain chief operating officer of Vivendi but wouldn’t have oversight of Universal Studios. Diller plans to bring in USA executive Michael Jackson to help him consolidate Vivendi’s television and entertainment businesses. Jackson would report to Universal Studios head Ron Meyer. Meyer, studio chief Stacey Snider and recreation group head Tom Williams would remain in their positions.

Responding to fears that he may create an upheaval at Universal, which has enjoyed a string of box-office hits in the last two years, Diller said he won’t try to “fix something that ain’t broke” and will be supportive of the current management team.