And Then There Were Two


Liberty Media Corp. has quietly backed away from the auction for Vivendi Universal S.A.'s U.S. entertainment assets, paring the field of potential bidders for Vivendi Universal Entertainment down to two.

Liberty, which owns a 3.5% stake in Vivendi Universal, apparently was turned off by a requirement by the French conglomerate that bids for VUE — which includes theme parks, the Universal movie studio and cable channels USA Network, Sci Fi Channel and Trio — start at $14 billion. According to a source familiar with Vivendi, the French conglomerate also set Aug. 18 as the deadline for the next round of bidding.

Liberty declined comment.

Interested party

Sources familiar with the bidding process confirmed reports last week that Liberty dropped out of the bidding.

"Is $14 billion a number they [Liberty] are real excited about? No," said one source familiar with the bidding process. "But the bottom line is that no matter what happens, Liberty is the second-largest shareholder in Vivendi. They have a keen interest in how this all works out."

Those same sources said that Liberty could re-enter the bidding at a later date, probably for just the cable channels.

Liberty's decision follows Metro-Goldwyn-Mayer Inc.'s announcement last month that it dropped out of the VUE bidding. MGM was though to have submitted the highest formal bid so far for the assets — $11.5 billion in cash.

Liberty had originally planned to combine the VUE assets in a spin-off including its Starz! Encore Group premium cable network. But since Liberty had agreed to pay Comcast Corp. $7.9 billion in stock and notes for the 57.5% of cable shopping channel QVC Inc. that Liberty didn't already own, the desire for Liberty to own the VUE assets has waned.

That apparently leaves General Electric Co.'s NBC television unit and a consortium led by former Vivendi vice chairman Edgar Bronfman Jr. as the remaining bidders for VUE.

Comcast could also enter the picture, but analysts are split over whether the MSO is serious about submitting a bid.

According to a source, Comcast has looked at VUE's books and also retained former Universal Studios chairman Frank Biondi as a consultant to help it with its valuation of the VUE assets, although it has not yet made a formal bid.

Comcast spokesman Tim Fitzpatrick declined to comment.

Sources said Comcast is most interested in the cable channels. However, Vivendi has said in the past that it does not want to sell the assets piecemeal.

Assorted scenarios

Vivendi also is keeping alive a plan to spin off VUE in an initial public offering. But the sluggish stock market and the poor performance of VUE in the first half of the year — revenue was down 16% — have caused some analysts to believe that's unlikely.

Bronfman, whose backers include several private equity firms and Cablevision Systems Corp. — which would contribute its Rainbow Media Holdings cable assets — is still in the hunt.

According to reports, GE is proposing a fairly complicated combination of VUE with NBC in a separate entity in which Vivendi Universal would have a 20% to 30% interest. The GE bid would include no cash but would call for an IPO two or three years after the deal is made to offer Vivendi an exit.

Bronfman is proposing to include cash in his bid and offer Vivendi a minority interest. But sources said the Bronfman bid could look more attractive because of the greater synergies it provides with the Rainbow networks — AMC, WE: Women's Entertainment and the Independent Film Channel — which would benefit from VUE's movie library.

"NBC has never run a studio and Bronfman is looking at providing strategic assets — the cable networks are all library channels," said one source familiar with the deal. "And don't forget, Edgar hired all the managers that are at VUE now."

But other sources added that Bronfman's management track record has been spotty at best. When Bronfman sold his Seagram Ltd. to Vivendi in 2000 — which basically created VUE — he largely took Vivendi stock in the purchase, stock that has lost about 80% of its value since the deal was made.

Bronfman spokesman Tod Hullin would not comment on Liberty or on any details regarding specific bids. But he said that Bronfman will continue to pursue the assets.