Davis Reportedly Gives Vivendi a Warning

Oil tycoon Marvin Davis is threatening to withdraw his $13-billion bid for the U.S. entertainment assets of Vivendi Universal unless the company agrees this week to deal exclusively with his investment group, according to sources close to the consortium.

Davis’ warning, made in a letter to Vivendi Chief Executive Jean-Rene Fourtou and the French company’s board of directors, made clear that his investment group’s “patience is not indefinite,” the sources said.

The letter further stated that, unless Vivendi commits itself to negotiate exclusively with Davis’ group, there is “no guarantee their offer would remain on the table,” according to those familiar with its contents.

Representatives of Davis declined to comment. Executives of Vivendi Universal could not be reached late Monday.

Davis’ gambit is certain to elevate the stakes during Thursday’s board meeting in Paris, at which Vivendi’s directors are expected to lay the framework for determining the future of Universal’s movie studio, theme parks, television properties and industry-leading music labels.

In an effort to lower the conglomerate’s heavy debt, Fourtou has been weighing various options for the entertainment assets, including a spinoff, a merger with another entertainment company or an outright sale. Vivendi came close to insolvency last summer because of debts incurred from various acquisitions, including that of Universal Studios.

The letter comes after Davis and his team have spent months preparing for a proposed buyout of Universal. But Fourtou has been in no hurry to make a deal, following a classic negotiating strategy of trying to solicit multiple offers in order to fetch the best price.

That strategy, however, has tested the patience of Davis, the former owner of 20th Century Fox, whose group is the only one that has offered to buy a controlling interest in all of Universal. Others have expressed interest in purchasing pieces of Universal, especially its cable businesses. Among them, sources said, are Liberty Media Corp., Viacom Inc., News Corp. and General Electric Co.’s NBC.

Davis’ group doesn’t “want to be a stalking horse for someone else to up their bid,” said a source close to the consortium.

The Davis group also has made it clear that it would withdraw from the deal if Universal Music Group was not included. Vivendi managers last week, according to sources, told the company’s record executives that the conglomerate intended to keep the music group, the world’s largest.

Although the music industry is in crisis over falling sales and rampant piracy, the Davis group sees Universal’s record company as an important generator of cash that offers synergies with the film studio.

Fourtou’s dealings with the Davis group have been complicated by thorny negotiations with Davis’ longtime foe, Vivendi Universal Entertainment chief Barry Diller.

Diller had been widely seen as the principal competitor to any deal proposed by Davis or anyone else. But in recent months, the mogul’s star has fallen inside Vivendi, sources said, amid clashes over how much the company might have to pay Diller to unwind a complex partnership created last year. At that time, Diller sold his USA entertainment holdings to Vivendi for about $11 billion.

After Davis made his $13-billion play for a 65% stake in Universal last November, Diller was among many who believed that the Los Angeles billionaire was simply “kicking the tires” and could not pull together the financing. Since then, however, Davis has won over many Wall Street skeptics.

His point man on the deal, former Seagram Co. finance chief Brian Mulligan, is said to have secured about $10 billion in commitments from financial institutions, including Bank of America Corp., Deutsche Bank and FleetBoston Financial Corp. Last week, buyout firm Carlyle Group joined Davis’ alliance, which also includes Bain Capital and Texas Pacific Group.

Vivendi’s leaders initially rebuffed the Davis offer as too low. After a second round of negotiations in January, they set aside the bid once again, this time to consider offers from other possible suitors.