Vivendi Expects Bids on Target

Despite being barraged with criticism for the way they’ve tried to shed their company’s entertainment assets, Vivendi Universal executives expressed increasing confidence over the weekend that they would have a deal wrapped up by Labor Day.

For weeks, Vivendi has come under fire from some frustrated suitors who’ve complained that the Paris-based company’s asking price for its Universal movie studio, theme parks and television businesses was out of whack with economic reality.

However, come today -- the deadline for the second round of bids -- top Vivendi executives contend that they will have at least one offer that meets their minimum asking price of $14 billion. And they say they believe they can reach a deal by the end of the month.

“We’re seeing light at the end of the tunnel,” said one senior Vivendi executive. “It’s close to the end.”

It wasn’t clear which of the bidders might meet Vivendi’s $14-billion target, but sources close to Vivendi and several industry insiders believe that NBC, the General Electric Co.-owned television network, has the best shot of landing a deal.

NBC’s offer involves little or no upfront cash but instead proposes a merger of the broadcast network and sister cable channels with Universal’s film and TV studio, as well as its Sci-Fi, USA and Trio cable channels.

Under the NBC scenario, Vivendi would get a minority stake in the new entity, roughly worth the value of the Universal assets, minus any Vivendi debt that NBC assumes. The idea is that Vivendi would make its money down the road when it sells shares in the joint venture.

The gamble, of course, is that the joint venture can exceed or at least retain the value that gets assigned to it -- far from a certain prospect when some of NBC’s top shows, including “The West Wing” and “Frasier,” have slipped in the ratings and “Friends” is in its final season.

There are other potential hurdles, including a federal rule that limits indirect foreign ownership of U.S. broadcasters to 25%. What’s more, NBC is known as a cautious buyer with a history of walking away from proposed acquisitions or mergers.

Vivendi executives expect that, beyond NBC, two others will submit offers today. They are John Malone’s Liberty Media Corp. and a consortium headed by Vivendi Vice Chairman Edgar Bronfman Jr., which includes Cablevision Systems Corp. as a strategic partner. Liberty and the Bronfman family both have more than a casual stake in the outcome: They already are major investors in Vivendi.

Like NBC, the other bidders could find creative ways to meet -- or at least approach -- Vivendi’s $14-billion valuation without relying on too much cash.

In addition to private equity capital and backing from his family’s holdings, a significant chunk of Bronfman’s proposal is likely to be based on the value assigned to various cable assets he would commit to the deal, including Cablevision’s AMC, IFC and WE: Women’s Entertainment.

Bronfman and his team spent several hours in meetings with top Vivendi executives in New York on Thursday -- before the East Coast was hit with an electricity blackout.

“Our effort has been the most underestimated since the ’69 Mets,” Bronfman spokesman Tod Hullin said Sunday. “We remain confident about the financial and strategic strength of our bid.”

Hullin declined to provide a detailed breakdown of the Bronfman offer.

Liberty’s bid also could depend heavily on how much value it attaches to strategic assets, notably the Starz Encore cable group, which it proposes to combine with Universal’s operation.

Although sources said Malone previously had balked at meeting Vivendi’s minimum price demands, Liberty Chief Executive Robert Bennett told analysts last week that his company, which has $15 billion in available liquidity, remains interested in the Universal assets.

Vivendi’s optimism comes despite mounting criticism from several participants in the auction, who’ve complained that the company has given conflicting information about price and timeframes; changed the rules in mid-course; and overplayed its hand by relying on unrealistic values for what the Universal assets are worth.

“This has been one of the worst auctions in the history” of mergers and acquisitions, said one of the bidders. Another industry source branded the process, which began in June, “chaotic and undisciplined.”

The auction is being coordinated on Vivendi’s behalf by investment bankers from Goldman Sachs & Co. and Citigroup Inc.

The latest setback came last week, when Comcast Corp. joined two other suitors -- Metro-Goldwyn-Mayer Inc. and a consortium fronted by oil magnate Marvin Davis -- in rejecting Vivendi’s price demands as too high. They’ve all dropped out of the bidding. Viacom Inc., meanwhile, has expressed interest solely in the Universal cable properties. Vivendi executives aren’t expecting Viacom to submit an offer today.

Vivendi executives insist that, far from being an arbitrary number, their $14-billion asking price is in line with valuations placed on the entertainment assets by several leading analysts. They say it is also consistent with the appraisals conducted earlier this year by the company’s auditors, PricewaterhouseCoopers and Ernst & Young.

If anything, they note, the value of the operation has only gone up this summer because of a strong box-office performance by Universal Studios. Its string of hits include “Bruce Almighty,” “2 Fast 2 Furious” and “Seabiscuit.”

A merger with NBC would seem at odds with Vivendi’s stated goal to raise cash to reduce its large debt load. It would also clash with Chairman Jean-Rene Fourtou’s desire to say a quick goodbye to Hollywood.

But Vivendi’s steadily improving balance sheet -- plus the recognition that pure cash offers have fallen well below expectations in the current economic climate -- has made a merger deal an increasingly attractive proposition for Vivendi.

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Times staff writers Sallie Hofmeister and Meg James contributed to this report.