CEO Finds Vivendi’s Grip on Hollywood Tough to Loosen

For Vivendi Universal Chief Executive Jean-Rene Fourtou, deciding to exit Hollywood was easy. The hard part has been finding the door.

Having staved off a financial crisis last summer, Fourtou is discovering there is no clean retreat from the flashy U.S. media empire that his predecessor built during a three-year buying spree.

Several factors are complicating Fourtou’s effort to settle the fate of the Paris-based company’s U.S. entertainment businesses and further reduce Vivendi’s crippling debt. Among them: a bleak economy, potential tax liabilities and spotty interest in the assets.

So far, Fourtou has been cautiously soliciting multiple offers to boost the price of Vivendi’s Universal operation, which includes the movie studio, theme parks, television properties, games unit and record labels. But that tactic may backfire as the company faces an ultimatum from the leading bidder, new financial pressures and rising impatience among investors over the company’s strategy.

“I don’t understand where these guys are going right now,” said Michael Nathanson, an analyst with Sanford C. Bernstein & Co. who has closely followed Fourtou. “Investors are going to want to know what his thinking is.”

Vivendi’s board is scheduled to hold a meeting today in Paris at which it is expected to take up the restructuring of the Universal division.

Speculation on Wall Street that Fourtou soon will trigger a bidding war by auctioning Universal assets helped send Vivendi’s stock up nearly 10% on Wednesday to $14.27 in New York Stock Exchange trading.

The market reaction may be short-lived. As with so many of the choices facing Fourtou, solving one problem only hatches another.

The Gordian knot is that most of Universal’s suitors are interested in taking only pieces of the operation, not the whole thing. That’s problematic because splitting off, say, the lucrative cable channels could only make it harder to sell the remaining assets that are less attractive on their own, notably the film studio and music group.

Just last week, in an effort to draw out more bids, Fourtou visited Viacom Inc. Chief Executive Sumner Redstone in Los Angeles. With about $3 billion in free cash, Viacom, which owns MTV and Nickelodeon, has plenty of money to make a deal. But its interest is confined to Universal’s cable properties, especially the SciFi Channel, not the film studio or theme parks, sources close to Viacom said.

Other companies, including Liberty Media Corp. and General Electric Co.’s NBC and Metro-Goldwyn-Mayer Inc., also have shown interest in parts of Universal.

Fourtou does not have the luxury of time.

After months of waiting for a response, oil tycoon Marvin Davis has threatened to withdraw his $13-billion bid for a controlling stake in Universal unless the Vivendi board agrees to negotiate exclusively with him.

Fourtou, who declined to comment, is said to believe that the offer from the Davis group is too low. But walking away would be a gamble for the Vivendi CEO. Davis is the only party who has made a formal all-or-nothing bid for the Universal properties. And some companies that had previously expressed interest, such as News Corp., are backing off, sources said.

Meanwhile, the contemplated breakup of the company has been stalled amid bickering over restrictions that Vivendi Universal Entertainment chief Barry Diller holds on the sale of such assets as the SciFi Channel and USA cable network.

In addition, the deteriorating economy has depressed prices for media assets, forcing Vivendi to put off an option it was weighing -- selling the Universal group to investors in a public offering.

There are self-imposed pressures as well.

Although no longer in a financial crisis, Vivendi is struggling this year to meet a target of raising $7 billion to reduce debt and improve its investment rating, which is still below investment grade. Analysts doubt that Fourtou will be able to meet his timetable without another significant asset sale this year.

That concern is fueled by two recent setbacks. First, the sale of Italian pay-TV operator Telepiu to News Corp. for $964 million has been held up by regulatory hurdles. What’s more, Fourtou was forced to abandon plans for a public offering of Vivendi’s French pay TV company Canal Plus because of management upheaval and employee protests.

Vivendi’s long-suffering investors, who have seen the value of their shares fall more than 60% in the last year, also are growing increasingly frustrated with Fourtou.

His predecessor, Jean-Marie Messier, was criticized for wracking up huge debts and leaving investors puzzled over his strategy to transform a once sleepy water utility into the world’s second-largest media company. After Messier was ousted, Fourtou promised to articulate a clear plan for Vivendi’s future, but he too has left investors scratching their heads.

Last year Fourtou downplayed speculation that he was looking to bow out of Hollywood, saying Vivendi would remain primarily a media conglomerate. Since then, though, the company has repositioned itself to focus on being a French telecom business, spending $4 billion to gain a controlling stake in phone-service provider Cegetel.

Further fueling confusion is Vivendi’s apparent intent to hold on to Universal Music Group, even though the industry is in crisis over rampant piracy and falling sales. “They must be the only media company in the world that sees such upside in the music business,” said Nick Bertolotti, an analyst with J.P. Morgan Chase & Co.

The scarcity of buyers and the prospect of a hefty tax liability may have influenced that decision, Bertolotti said. Selling Universal Music Group before 2005 could trigger a $2-billion tax penalty for Vivendi under terms of a deal with former Universal owner Seagram Co.

Davis has made it clear, however, that he will withdraw his offer if the music group is excluded.

Whatever happens, Fourtou’s decisions will be watched closely and could trigger a wave of similar deconsolidations at other struggling media companies, such as AOL Time Warner Inc., predicted Jeffrey Sonnenfeld, associate dean of the Yale School of Management.

“There’s going to be a reassessment of the breathless euphoria around similar-sounding businesses,” Sonnenfeld said. “People are going to take a good hard look.”

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The sum of its parts

Vivendi Universal CEO Jean-Rene Fourtou must decide whether he will get more money by selling the entertainment units as a whole or breaking them apart. A look at some potential bidders and the assets in which they have expressed interest:

Viacom: SciFi and USA Network cable channels

Liberty Media: Everything except Universal Music Group, the

World’s largest record company

Billionaire Marvin Davis: Believed to be the only suitor who

wants to buy all the assets

General Electric’s NBC: Cable assets

MGM: Universal’s movie studio and film library

News Corp.: Cable assets, Universal movie studio and film library

Blackstone Group: Theme parks (already owns 50% of Universal’s two Orlando theme parks)

Source: Times research

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Times staff writer Sallie Hofmeister contributed to this report.