Lawsuit Claims Vivendi Hid Crisis

Liberty Media Corp., the investment company controlled by cable magnate John Malone, accused French media giant Vivendi Universal on Friday of hiding its financial problems to entice Liberty into a stock exchange last year.

In a lawsuit filed in U.S. District Court in New York, Liberty claimed that Vivendi and two of its former officers were guilty of “outright fraud, misrepresentation and concealment to deceive Liberty about its indebtedness and lack of cash” at the time of the stock swap.

The exchange in May helped create Vivendi Universal Entertainment by combining Universal’s movie studio, theme parks and television holdings with the entertainment assets of USA Networks.

As part of the deal, Liberty exchanged its stock in USA for a 3.6% equity stake in Vivendi Universal.

The lawsuit is the most high profile among the more than a dozen filed against Vivendi since last summer, when the owner of Universal Studios and Universal Music Group nearly ran out of cash.

The filing, however, surprised analysts. They said it wasn’t Malone’s style to file such complaints, and noted that Liberty has been in talks with Vivendi about buying some of the Universal assets.

The timing led some insiders to speculate that Malone might be trying to gain leverage in negotiations with Vivendi Chief Executive Jean Rene Fourtou, putting pressure on him to make a deal. Fourtou has been talking to various suitors.

“It strikes me as odd because the talks are still ongoing,” said a source close to Malone. “It could be a negotiating ploy.”

Representatives of Liberty and Vivendi declined to comment.

The lawsuit centers on Vivendi’s purchase last year of USA Networks’ film and television assets for about $11 billion.

Under the deal, announced in December 2001, Liberty exchanged its stock in USA for 37.4 million shares in Vivendi Universal, valued at $1.65 billion.

Since then, Vivendi’s stock has plunged more than 70% because of doubts about the company’s strategy and a financial crisis brought by hefty debts amassed during a three-year acquisition spree.

The stock free fall has slashed the value of Liberty’s Vivendi stake to $546 million, according to the lawsuit .

“Unfortunately, the financial situation at Vivendi was nothing close to the rosy situation that defendants had portrayed it to be,” the complaint stated.

Liberty is seeking unspecified damages.

Flush with cash, Englewood, Colo.-based Liberty is contemplating several possible deals to transform itself into a full-fledged media giant.

Liberty’s executives repeatedly have expressed interest in combining its Starz Encore cable group with Universal’s USA and SciFi channels and the Universal movie studio and theme parks. Liberty is said to have little interest in the music group.

On Thursday, Malone decided to back News Corp.’s bid for satellite TV leader DirecTV rather than make an offer of his own.

Liberty also may buy Comcast Corp.’s 58% interest in the QVC shopping channel. The company has the resources to do that deal, as well as buy some of Vivendi’s properties, analysts say.

“Liberty’s comfortable liquidity position allows it to be a top contender for Vivendi Universal’s U.S. entertainment assets,” said Stuart Linde of Lehman Bros. in a report this week.