Vivendi Awaiting Diller's Next Move

By CORIE BROWN

Sept. 18, 2002 12 AM PT

TIMES STAFF WRITER

The future of one of the world’s biggest entertainment companies is being held up by one man--and he seems in no hurry to let it move forward.

Barry Diller, long known as one of Hollywood’s shrewdest executives, has emerged as the key to what shape Vivendi Universal’s entertainment operation will take in the months ahead, according to sources close to the company and Diller.

The French chief executive of Vivendi, Jean-Rene Fourtou, wants Diller to assume an important leadership role in the entertainment division if it is spun off into a separate public company.

Diller already is president of Vivendi Universal Entertainment, and Fourtou envisions keeping him as part of the spinoff. The thinking is that Diller’s stature would bring instant credibility to any new media company, while allowing the Paris-based conglomerate to pull back from the front lines of movie making, television and theme parks.

At the same time, however, Diller’s financial advisors are counseling him to steer clear of taking on heightened responsibilities at a revamped Vivendi. Instead, they’re urging him to stay focused on his primary business, USA Interactive Inc., which owns Home Shopping Network, Ticketmaster and Expedia.com.

Diller himself hasn’t tipped his hand as to which way he is leaning. Those close to him say he understands that USA Interactive is a company on the rise and is increasingly demanding of his time.

“Still,” said one Diller advisor, “it’s entirely possible that he will look at the studio with romantic eyes.”

Meanwhile, as Diller makes up his mind, Viviendi finds itself stymied in its long-range planning. Sources close to Diller and Vivendi say the company will not move ahead until it has either a commitment or rejection from Diller.

Diller and Vivendi declined to comment.

Next week at a highly anticipated board meeting, Fourtou will outline the assets Vivendi plans to sell to meet the approximately $10-billion target he has set for paying off some of the company’s debt load. He also plans to announce a further reduction in Vivendi’s 40% stake in Vivendi Environnement, the company’s utility division, as well as a loan of nearly $2 billion to help solve the corporation’s immediate cash crisis.

When it comes to Universal Entertainment, Fourtou does not have the luxury of time either. The company’s entertainment executives, faced with the continuing uncertainty, already are exploring options elsewhere, according to sources close to the company.

“We’ve built some of the best management in Hollywood,” a source said. “It would be terrible to lose them, and you are going to if you can’t articulate a future they can believe in.”

One job Diller would be unlikely to consider is that of chief executive because he already holds that post at USA Interactive. With a 0.5% stake in USAI and 69.1% of the voting power, Diller’s ego as well as a personal fortune of $750 million is invested in the firm.

At Vivendi Universal Entertainment, Diller receives no salary. He was given a 1.5% stake in the division worth a minimum of $275 million. USAI was given a 5.44% stake in Vivendi Universal Entertainment.

Diller rejected Universal Music Group as part of his unit, a strategic move considering the dismal financial prospects for music companies in the age of rampant Internet piracy.

As long as Diller is considered a potential player in Vivendi, investment bankers close to the company as well as company insiders insist, the music company will remain a separate division.

Diller’s advisors are urging him not to invest time or money in Vivendi’s entertainment assets. One of them is Gordon Crawford, senior vice president of Capital Research and Management, one of the largest institutional investors in USAI.

So far, Diller’s longtime bankers at Allen & Co. have not yet been brought in to work on any Vivendi-related ventures.

The media industry is considered a mature, slow-growth business, said some of those advisors. There will be little financial upside to owning a film and television studio for many years to come, they said, noting the stark contrast with the huge potential Diller has as the chairman and controlling shareholder of e-commerce company USAI.

“The busted stock prices in media are a real problem,” said one investment banker. Management problems, not just at Vivendi but also at Walt Disney Co. and AOL Time Warner Inc., have several companies trying to spin off assets in a down market.

To protect the value of USAI, Diller has repeatedly stated he would not merge or involve his company.

If so, Fourtou would consider merging Vivendi Universal Entertainment with one or more strategic partners to create a new media company, according to sources close to Vivendi.

With Diller in a leading role, he would have the ability to wield heavyweight influence in the media world. A force in that industry since his days running Paramount Studios and then Twentieth Century Fox, creating the Fox Broadcasting Network, Diller has long said he would like to be a more influential player.

Diller has said he believed that three or four media giants would control the world’s entertainment, information and electronic commerce. He said he planned to be a major player in one of those companies.

Still, said one of Diller’s closest associates, “I don’t think he is anywhere near making a decision about Vivendi.”

Any venture Diller touches would have cachet that the company’s French executives lack, said Wall Street sources. The U.S. financial markets would value the venture more highly, the sources said.

Perhaps more important, Diller would heighten interest across the media industry, attracting more potential partners to the venture, according to investment bankers familiar with Vivendi.

“Diller is the ideal person to do something with,” said one of the bankers. “He could be an investor, the chairman, the guy who puts the whole team together.”

Without Diller, Fourtou’s options are limited. One strategy feared by Hollywood insiders is that Vivendi would sell Universal’s assets to rival media companies interested in merging them with their existing operations. That would leave the industry with one fewer major studio.

Already, Viacom Inc. and News Corp. have made inquiries, said one investment banker working with Vivendi. Bargain-hunting private equity firms such as Blackstone Group and Kohlberg Kravis Roberts & Co. also are circling, hoping to pick off bits and pieces.

At the board meeting next week, Vivendi will announce plans to unload its Canal Plus Technologies unit, which makes pay-TV software, to Thomson Multimedia for about $180 million.

Vivendi will sell its entire publishing division, both the French publishing houses as well as Boston-based Houghton Mifflin Co., for an expected $4 billion, say sources close to the company.

Fourtou expects to raise an additional $2 billion with the sale of Canal Plus’ various non-French divisions, including the $1-billion sale of its Italian pay-television company Telepui to Rupert Murdoch’s News Corp.

Selling 51% of the remaining French Canal Plus in a public stock offering would raise an additional $2 billion, a source said. Vivendi’s 10% interest in EchoStar along with the Moroccan telephone company Maroc Telecom could raise another $2 billion.

Now if it could only figure out the future of its entertainment properties.

“Vivendi has had every possible future option spelled out for it,” said one investment banker familiar with the extraordinary asset review process that has taken place during the last two months. “The next move is Diller’s.”

(BEGIN TEXT OF INFOBOX)

Barry Diller: Career Highlights

Barry Diller was born in February 1942 in San Francisco but grew up in Beverly Hills. He dropped out of UCLA after a few weeks and got a mailroom job at William Morris Agency.

1964

Promoted to full talent agent at William Morris.

1966

Joins ABC programming staff.

1969

Introduces ABC “Movie of the Week.”

1973

Made vice president for prime-time programming.

1974

Became chairman and CEO of Paramount Pictures.

1983

Named president of Paramount’s Entertainment and Communications Group.