Vivendi’s Fourtou, Diller Downplay Their Differences

Vivendi Universal Chief Executive Jean-Rene Fourtou and USA Interactive Chairman Barry Diller sought Thursday to downplay perceptions of a widening rift between them as they attempt to untangle their complex partnership.

In a joint statement, the two said they remain committed to renegotiating their involvement in Vivendi Universal Entertainment, a unit that owns Universal Studios and other properties. “These discussions, cordial and collegial, continue,” the statement said.

The joint venture was created last year when Vivendi paid $11 billion to buy the entertainment assets of Diller’s USA Networks. The deal made Diller head of the U.S. entertainment operation and gave his company an ownership stake.

Fourtou wants to unravel the partnership, which would make it easier for Vivendi to sell or spin off entertainment assets to slash debts that nearly forced the media giant into bankruptcy last summer. The effort has been complicated by Diller’s “blocking rights” over any sale.

Despite their upbeat statement, the two remain far apart on key issues, according to sources familiar with the talks.

A key question is how much money Vivendi would have to pay USA Interactive to cover taxes resulting from a sale. The tax bill could be as high as $2 billion, sources said.

Another issue involves a restriction that limits what Vivendi could do with the cash from any sale of the Universal assets. Under the current agreement, in the event of a sale Vivendi would have to put half of the proceeds back into the group.

Diller could agree to give up some of his rights in exchange for an increased stake in the entertainment company, which probably would be spun off from the French parent.

People familiar with the talks said Diller and Fourtou also remain separated by a core difference about Universal’s future.

Fourtou, a former pharmaceutical executive with no appetite for Hollywood, favors selling off pieces of the group. Diller, a Hollywood veteran, prefers to expand it, possibly by merging with Liberty Media Corp.’s Starz Encore cable channel, sources familiar with the talks said.

However, a source close to Diller said there were “no philosophical differences” between the two men.

The talks come one week before Fourtou is set to meet with Diller’s business rival Marvin Davis, who has offered to buy the U.S. entertainment group for up to $20 billion.

Fourtou returned to Paris on Wednesday after two days of meetings with Diller and Vivendi’s U.S. executives. The sessions centered in large part on operations and budgets for 2003, the pair said in their statement.

Diller and Vivendi Chief Operating Officer Jean-Bernard Levy and Chief Financial Officer Jacques Espinasse subsequently flew to Los Angeles and were expected to meet today with Universal Studios President Ron Meyer and Universal Pictures Chairwoman Stacey Snider to discuss the studio’s cost-cutting effort and other issues.