Do We Hear $15B?



Who Bid for VUE?

The auction for USA Network, Sci Fi Channel and other Vivendi Universal U.S. assets is under way, with five companies submitting bids and at least two — Liberty Media Corp. and General Electric Co.'s NBC — appearing to nose ahead of the pack.

Sources said last week that aside from Liberty and NBC, Metro-Goldwyn-Mayer Inc., oil billionaire Marvin Davis and a group including former Vivendi vice chairman Edgar Bronfman Jr. and Cablevision Systems Corp., all submitted bids June 23.

Bids for Vivendi Universal Entertainment — which also includes cable channels Trio and NewsWorld International, Universal Studios and its theme parks — ranged from $12 billion to $15 billion, according to published reports.

Viacom Inc., expected to join the fray, declined to make an initial bid but reportedly told Vivendi later last week that it was interested in bidding on the cable networks and possibly its TV-production studio.

Vivendi's board of directors is expected to whittle the list to two or three bidders this week. The French conglomerate is expected to decide the winner by the end of July.

Vivendi Universal spokeswoman Anita Larsen declined to comment.

Liberty obtained an edge because it bid for Vivendi's troubled Universal Music Group as well as VUE's cable, film studio and theme-park assets. According to several reports, the Liberty bid was for between $14 billion and $15 billion.

By making a separate offer for UMG, Liberty is offering Vivendi an opportunity to erase the onus of former Vivendi chairman Jean-Marie Messier's disastrous buying spree in one fell swoop.

Messier racked up a huge, $17 billion debt during his short tenure, paying $34 billion for Seagram Co. (which included Universal) in 2000 and $11 billion in 2001 for the stakes in USA Networks Inc.'s cable channels it didn't already own.

After Messier was ousted in July 2002, new chairman Jean-Rene Fourtou embarked on a plan to sell off assets.

Two other bidders — Bronfman and Davis — also bid for the music group. But because both are relying heavily on private-equity financing — Bronfman has teamed with Blackstone Group, Wachovia Securities, Thomas H. Lee Partners and Merrill Lynch, while Davis is paired with Bain Capital and Texas Pacific Group — their bids are perceived as more volatile.

Cablevision Systems Corp. is aligned with the Bronfman bid, but is expected only to contribute national programming assets, not cash.

The Liberty bid would seem to be in line with Davis's offer of $20 billion (including the assumption of $5 billion in debt) made in November, rejected at the time as too low.

Janco Partners media analyst Matt Harrigan estimated the value of VUE at between $12 billion and $15.7 billion, with Universal Music worth about $4.8 billion.

While Liberty has a healthy cash reserve (about $5 billion) that it could contribute to a bid, GE has a highly regarded stock to offer.

Liberty planned to combine the VUE assets with its premium movie programmer, Starz Encore Group LLC, in a separate entity. Sources last week said the GE bid would involve purchasing a majority interest in VUE, leaving Vivendi with a minority stake.

Liberty is known for tough negotiations and could drag out the process longer than Vivendi would like.

GE is notoriously averse to parting with cash, one component that most observers believe is a top priority for Vivendi.

"There is no doubt that [Liberty chairman John] Malone is quite value-conscious," Harrigan said. "The issue is the structure with the GE bid.

"Even though Vivendi is looking for 7 billion euros ($7.99 billion) in liquidity this year, they've made some fair strides toward that. It's not like they absolutely have to toss everything out."

While Universal Music has been in decline, Harrigan said it makes more sense for Liberty from a historical perspective.

"At one point, Malone was talking about launching a music channel to compete with Viacom," Harrigan said. "Universal Music's market share is around 30%.

"I think the antitrust considerations are less onerous than they were, and you could probably get distribution right away with DirecTV and with Comcast as part of the settlement with the QVC situation. There are all sorts of new angles here."

Liberty owns an 18% stake in News Corp., which is in the midst of buying DirecTV parent Hughes Electronics Corp.

Liberty also owns 42.5% of QVC and has exercised an option to either sell its stake to Comcast (which owns the rest) or buy out Comcast's interest. The two parties are currently in the evaluation stage of their respective stakes.

Fulcrum Global Partners media analyst Richard Greenfield said in a report that Liberty's bid for UMG was a negative.

"We have significant concerns surrounding the global music business, which is currently in its third year of decline, and is likely to continuing its decline for several years due to the transition to digital and online piracy," he wrote.