NBC Gaining in Bid for Universal

Senior Vivendi Universal executives are expected to recommend Tuesday that the board of the French conglomerate vote to enter into exclusive talks with General Electric Co.’s NBC, though a marriage is far from certain.

The only other remaining bidder for Vivendi’s U.S. entertainment assets, a group led by Vivendi Vice Chairman Edgar Bronfman Jr., hasn’t given up on winning back the unit that the Bronfman family once owned. Although his prospects appeared to dim late last week as NBC’s bid gained momentum, Bronfman’s representatives continued to talk with Vivendi executives over the weekend, sources familiar with the negotiations say.

Representatives for Bronfman, Vivendi and NBC declined to comment Sunday.

Sources close to the auction say that Vivendi’s top executives believe shareholders have the most to gain from a partnership with NBC and have focused increasingly in recent weeks on securing a deal. NBC Chairman Bob Wright has proposed combining the company’s broadcast and cable networks -- including CNBC, MSNBC, Bravo and Spanish language Telemundo -- with Universal’s film, television and theme park businesses to build a $40-billion entertainment powerhouse.

Talks between Vivendi and NBC intensified in recent days, with meetings late into the night. The sessions rotated between NBC’s skyscraper suites in New York’s Rockefeller Center and Vivendi’s U.S. headquarters a few blocks away on 3rd Avenue, with other meetings held at the midtown law offices of Weil, Gotshal & Manges, which is representing Vivendi in the auction.

“GE’s the apple in their eye,” said a Vivendi executive, referring to top Vivendi management. “They’re able to come back to their shareholders and say, see, ‘We’re in business with one of the premier companies in the world.’ ”

Sources close to both sides say they are confident that Vivendi Chief Executive Jean-Rene Fourtou will recommend a partnership with GE at Tuesday’s board meeting. It’s unclear, however, how Vivendi’s board will vote.

Although Bronfman and his father and fellow director, Edgar Bronfman Sr., have temporarily recused themselves from the board, they hold some clout among other board members and the company’s largest shareholders.

Vivendi executives scheduled Tuesday’s special board meeting in Paris after failing last week to officially anoint a front-runner. The delay was widely viewed as a way for Vivendi to extract concessions from NBC. Whether that strategy worked remains uncertain, but the postponement did little to mollify the restless bidders or Universal Studios executives who have been in limbo since Vivendi announced last spring that it would slash debt by selling off its U.S. movie studio, theme parks and cable television assets.

Selecting NBC would represent a significant step toward resolving Universal’s uncertain fate. But even if the board votes to approve exclusive talks with NBC, the deal could fall apart over a host of thorny issues, from how much cash Vivendi could extract from the deal to a timetable for Vivendi’s much-desired exit from Hollywood.

A major sticking point for Vivendi is the kind of guarantees GE would provide to protect the conglomerate from financial losses if the joint venture doesn’t pan out.

Another factor that has yet to be sorted out is how to satisfy former Vivendi Universal Entertainment Chairman Barry Diller, whose company holds numerous restrictions and controls that limit what any future buyer can do with the assets.

Rather than pay cash, NBC has proposed merging its operations with the Universal empire. NBC would manage and control the new company with at least a 75% equity interest. Vivendi would have up to a 25% stake and the ability to cash out the bulk of its stake within two years, and to make its final exit within seven years.

Under the deal, NBC would provide guarantees to Vivendi that it could sell its equity stake in the combined operation at a minimum price. Vivendi in turn could borrow against those pledges to receive upfront cash.

Bronfman’s proposed deal would let Vivendi keep a 20% stake in the entertainment operation. But his strategic partner, Cablevision Systems Corp., is not nearly as attractive to Vivendi as NBC.

Beyond that, Bronfman carries considerable baggage with fellow Vivendi shareholders. Many blame him for teaming up with Jean-Marie Messier, the former CEO and architect of the plan to merge an old-line French water utility with the some of the very assets Vivendi now is trying to sell off. Though he later helped to oust Messier, Bronfman took heat for his role in negotiating a controversial severance package for Messier that Vivendi now is trying to block.

In the last week, cracks have begun to appear in Bronfman’s camp. His private equity backers are increasingly restless, concerned about having their capital held up by what they see as Vivendi’s dithering. And Bronfman’s chief spokesman, Tod Hullin, announced that he was joining Boeing Co. as head of communications.

Bronfman didn’t help his case when he publicly criticized Vivendi’s proposed merger with NBC, accusing the company of abandoning its stated goal of raising cash and exiting Hollywood.

The comments, which appeared last week in an interview with the Financial Times, weren’t well received within Vivendi, company insiders say.