Vivendi Said to Be in Talks to Sell Theme Parks to Investment Firm

Vivendi Universal is in advanced talks to sell its flagship theme parks to a New York investment firm in what could be the first step toward dismantling Universal’s vaunted entertainment empire in a bid to raise cash, a source familiar with the negotiations said.

Blackstone Group is negotiating with the Paris-based company to purchase all or part of Vivendi’s theme park division, including Universal Studios Hollywood, Universal Orlando in Florida and Universal’s ownership interests in parks in Spain and Japan, the source said. Blackstone already holds a 50% stake in the two parks that make up Universal Orlando.

The theme park operation is likely to fetch about $1.5 billion, according to analysts.

The talks come as Vivendi made clear this week that it plans to sell not only the theme parks but also its Universal movie studio and television properties by year’s end. The fate of Universal’s huge music division is less certain. The company is seeking to reconfigure itself into a telecommunications giant and slash its $18-billion debt load.

The seriousness of the discussions with Blackstone -- which had stalled last fall, only to be revived recently -- suggest that Vivendi Chief Executive Jean-Rene Fourtou may sell off the entertainment assets piecemeal. That approach is frowned upon by some observers, who believe that bundling the businesses makes more strategic sense and could raise more cash.

Indeed, a deal with Blackstone has the potential to undercut Vivendi’s most aggressive suitor, Marvin Davis. An investment group led by the oil tycoon has offered to buy a controlling interest in the entertainment assets for $13 billion -- but only if all the units are included. Davis’ representatives could not be reached for comment Thursday.

The other serious bidders, including Liberty Media Corp. and Viacom Inc., are keen on the company’s profitable cable channels and have little interest in the high-cost and low-margin theme park business.

Analysts weren’t surprised by the talks with Blackstone. “Most of the other buyers have said they don’t want the theme parks,” said Michael Nathanson, with Sanford C. Bernstein. “Blackstone is the logical buyer.”

Representatives of Universal Studios Recreation Group and Blackstone declined to comment. Sources close to Universal, however, said there was a widespread expectation within the company that a deal with Blackstone would be struck.

Whatever form it takes, a pact with Blackstone is not expected to produce dramatic changes to the theme park operation, which probably would continue under the same management and keep the Universal name, sources and analysts said.

Even so, a sale of the parks would mark the end of an era at Universal, which has long regarded its theme parks as a key promotional outlet for franchise movies, such as “Jurassic Park.”

Under former owners MCA and Seagram Co., Universal spent billions of dollars building its resort in Orlando -- which today is composed of two theme parks, three hotels and the CityWalk entertainment district -- in an effort to take on rival Walt Disney Co.

More recently, former Vivendi Universal Entertainment Chairman Barry Diller had been a keen backer of the theme park business and gave the division a mandate to expand at home and abroad. Universal recently secured an agreement to open a theme park in Shanghai.

Theme parks, although hard hit by the war in Iraq and an industrywide slump since the Sept. 11 terrorist attacks, have been a profitable business for Vivendi. They contributed about $100 million in annual cash flow.

But the parks, with their multimillion-dollar thrill rides, are costly to maintain, and Vivendi does not have the cash to run the business, Fourtou told shareholders Tuesday during the company’s annual meeting.

Established in 1985, Blackstone is one of the nation’s leading investment firms, with more than $14 billion in equity funds. It is known for partnering with major corporations in big deals and is no stranger to the theme park business or Vivendi. In 1991, Blackstone invested in the Six Flags amusement park chain with Time Warner Inc. and later sold its interests for a tidy profit.

The company already owns half of the two parks that make up Universal Orlando -- Universal Studios Florida and Islands of Adventure -- a stake it acquired in 2000 for $275 million.

Blackstone also was among the investors that bought Boston publisher Houghton Mifflin from Vivendi last year.

Buying the Universal parks on the cheap is simply a good investment for Blackstone, which probably would sell the operation when the economy improves, analysts said.

“If Blackstone buys the theme parks soon, it will be because the company has decided the timing is right,” said Orlando theme park consultant Bill Coan. “It’s still a down market in tourism. I think they see distinct advantages in buying right now.”

Splitting the theme parks off from the studio, however, could create complications for any buyer. The Hollywood theme park, for example, sits on the Universal City lot, requiring any new owner to make costly lease payments to Universal. The new owner also would have to negotiate intellectual property rights for movie-themed rides.

Staff writer Rob Johnson of the Orlando Sentinel contributed to this report.