Vivendi Rejects MGM Bid for Assets

Determined to fetch the best price for its U.S. entertainment assets, Vivendi Universal on Wednesday rejected as too low Metro-Goldwyn-Mayer Inc.’s $11.5-billion bid but encouraged the Los Angeles studio to stay in the race with a higher offer.

The development raised questions about Vivendi’s strategy, given that MGM’s bid was said to be among the highest cash offers for Universal’s movie studio, theme parks and television businesses.

Vivendi watchers offered several theories Wednesday: The move was a negotiation ploy, a slap at MGM for its attempt this week to speed up the auction process or an indication that Vivendi has identified a more lucrative bid in the wings.

However, a source close to Vivendi said the maneuver reflected the French company’s disappointment with the bids it has received and its growing confidence in its improved financial condition, as well the stronger stock market.

Should all the bids fall short, Vivendi executives believe they have the last-resort option of holding a public offering of the Universal operation.

“They don’t feel they are under any big pressure,” the source said.

Vivendi faced a financial crisis last summer after making more than $70 billion in media acquisitions. Since then, it’s made considerable progress in slashing its huge debts and lining up new credit.

Now the company believes it can meet its target of raising about $7 billion from asset sales this year -- without necessarily shedding Universal.

The change in its financial picture has emboldened Vivendi, giving it more leverage with bidders looking to buy leading entertainment businesses at bargain prices.

MGM executives declined to comment Wednesday.

Vivendi informed the Los Angeles studio that its bid was too low one day after it bristled at MGM’s demand that Vivendi provide additional financial information on its assets, sources familiar with the matter said. MGM was seeking the data in exchange for sweetening its previous bid of $11.2 billion, the sources said.

They said MGM was still negotiating with Vivendi and stood by its threat to pull out of the auction altogether if Vivendi doesn’t supply the financial information by Monday.

Today in New York, Vivendi Chief Executive Jean-Rene Fourtou is scheduled to meet with executives and advisors who have been coordinating the auction process.

Fourtou is expected to address mounting frustration among bidders over the paucity of financial information Vivendi has provided and the absence of a clear timeframe for submitting new bids.

“The process is in disarray,” said one source close to the auction.

A Vivendi spokeswoman declined to comment.

MGM is the second among six suitors whose offers have been rejected by Vivendi.

Last month, Vivendi told an investment group headed by Marvin Davis that its offer was too low. The Davis team was similarly invited to up its offer in a second round of negotiations but hasn’t decided whether to do so.

Others interested in purchasing the Universal assets include Liberty Media Corp. -- viewed by many as a front-runner -- Viacom Inc. and an investment group headed by Vivendi Universal Vice Chairman Edgar Bronfman Jr.

General Electric Co.’s NBC has proposed a merger of assets. A combination with such a well-regarded company could be especially attractive to Vivendi, which hopes to keep a stake in the entertainment operation.