Vivendi Wants Another Universal Go-Around

Following a much-anticipated board meeting Tuesday to weigh offers for its entertainment assets, Vivendi Universal found itself in basically the same situation it had been in the day before.

After a four-hour meeting in Paris, the board issued a statement saying it had decided to enter into further negotiations with “the two strongest bidders”: General Electric Co.’s NBC and a group headed by Vivendi Vice Chairman Edgar Bronfman Jr.

What the news release failed to mention: Those two are the only bidders left in the field.

Five other suitors -- Viacom Inc., Liberty Media Corp., a group led by Marvin Davis, Metro-Goldwyn-Mayer Inc. and Comcast Corp. -- have pulled out one by one in recent weeks, balking at Vivendi’s $14-billion asking price.

Top Vivendi executives said this month that they expected to reach a preliminary deal with one of the bidders by Labor Day. That’s looking increasingly unlikely, however, as the French conglomerate grapples with two wildly different proposals.

On Tuesday, the company’s board put off a decision to narrow the negotiations to just one bidder, believing it needed more time to sort through a host of complexities and potential drawbacks tied to each proposal, said a source close to the board. A decision could come over the next two weeks.

“Both of these offers contain question marks and complications that need further clarification,” the source said Tuesday.

Investors and analysts weren’t surprised by the board’s reluctance to enter exclusive negotiations with either NBC or Bronfman, saying the company faces a tough choice and is loath to rush into a decision that could backfire on Vivendi shareholders.

“I would have been shocked if they got it done today,” said Matthew Harrigan, managing director of Janco Partners, a money management firm in Denver. “They’re still thinking long and hard.”

Time is not on their side, however. The auction process that began in April already has dragged on much longer than many had anticipated, and further delays could backfire on Vivendi, which has failed to generate the bidding war it hoped for. Both Bronfman and NBC have spent considerable time and resources over the last several weeks as their teams of lawyers and investment bankers worked overtime to prepare bids. All are eager for a resolution.

Representatives of NBC and Bronfman declined to comment Tuesday.

Bronfman’s group, which faces pressure from its private-equity backers concerned about tying up capital that could be used for other deals, was said to be particularly frustrated by Vivendi’s vague response Tuesday. The consortium fears being used as a stalking-horse against NBC.

“They shouldn’t take our continued participation for granted,” said one source close to the Bronfman consortium, which is expected to meet with Vivendi executives today.

A Vivendi spokesman declined to comment.

In its statement, the company said that under either scenario it would keep a “substantial minority interest in a U.S. media corporation with excellent growth potential.” Vivendi also repeated its assertion that it was continuing to investigate holding a public offering for Vivendi Universal Entertainment’s movie studio, theme parks and cable television assets. That, however, is largely seen as a fallback option if the auction ends in a total bust.

General Electric is widely viewed as having the best shot at landing a deal with Vivendi. NBC is the only major broadcast network without a film studio, and Vivendi executives have an abiding respect for GE’s management and solid financial situation. Striking a deal with GE also could be a face-saving move for Vivendi Chairman Jean Rene Fourtou, whose handling of the auction has drawn strong criticism.

Rather than pay cash, NBC has proposed merging its broadcast network and cable channels, which include CNBC, Telemundo and Bravo, with Universal’s TV and film group. NBC would manage the operation, giving Vivendi a 20% to 25% stake in the combined entity with the ability to cash out its stake over time, probably through a public offering. GE also has proposed giving Vivendi a put option that would allow Vivendi to borrow against the future guarantees.

In theory, Vivendi could reap more in the long run by selling shares in the combined entity than by selling its entire interest today. That windfall, however, assumes that there are in fact real synergies to be realized between Universal and NBC and that the new entity’s shares would thus increase in value over time.

What Vivendi is seeking are guarantees to protect itself in case things don’t pan out so well -- one of the main sticking points in the negotiations.

It’s a particularly sensitive issue with Vivendi’s board, given the huge decline in market values that occurred after former Vivendi Chief Executive Jean-Marie Messier merged an old-line French utility with a flashy Hollywood studio and music company.

He too promised synergy. But huge goodwill write-downs of the value of the media assets, combined with massive debt, triggered record losses at Vivendi and contributed to the more than 70% drop in its share price last year. The financial crisis last summer led to the current auction of the Universal assets.

“There are so many facets for them to look at,” said Andrew Wallach, managing partner of Cumberland Associates, an investor in Vivendi. “Before we were talking about an all-cash bid. Now you’ve got to look at a bid in which you’re going to get a minority ownership position in an entity you’re not going to control.”

Bronfman’s offer also would allow Vivendi to retain a stake in the Universal operation.

Unlike GE, however, Bronfman is offering to help reduce Vivendi’s debt -- by paying $5.5 billion in cash plus assuming $2.5 billion in debt. Another selling point for Bronfman, whose family owns about 5% of Vivendi, is that he’s intimately familiar with the assets, having built up the Universal operation as the former CEO of Seagram.

Bronfman has lined up backing from a group headed by Wachovia Corp. and Merrill Lynch & Co., as well as private equity firms Thomas H. Lee Partners and Blackstone Group. Like NBC, his deal has a strategic component in which Cablevision Systems Corp. would combine its cable channels AMC, IFC and WE with Universal’s TV group.

What those cable assets are worth, however, is among the chief sticking points with Vivendi. Analyst estimates have varied from $2 billion to $4 billion.

Bronfman also carries some baggage with Vivendi’s French shareholders, many of whom are bitter over his teaming up with Messier to create Vivendi Universal and his role in negotiating a controversial severance package for Messier that is now tied up in court. Bronfman, who helped orchestrate Messier’s ouster last summer, has blamed Messier for misleading him and other directors about the company’s woes.

Times staff writer Meg James contributed to this report.