Does Fourtou Want Out of Diller Deal?


Vivendi Universal chairman Jean-Rene Fourtou told analysts Wednesday that he
is working toward unwinding the French media and telecommunications giant's
agreement with U.S. media mogul Barry Diller and his USA Interactive Inc., but
he added that it doesn't mean he plans to sell Vivendi's U.S-based entertainment

Fourtou -- speaking with analysts and investors in Paris Dec. 4 to discuss
Vivendi's bid to buy out British Telecommunications Group plc's 26 percent
interest in French telephone company Cegetel for $4 billion -- dropped the
bombshell late in his opening remarks.

"We should unwind our agreement with Barry Diller," Fourtou said on the
conference call. "He has agreed to accelerate our talks to see how we can unwind
USAi with VUE [Vivendi Universal Entertainment]."

USAi owns a 5.5 percent stake in VUE, which it gained as part of the highly
complicated deal last year where Diller sold the remaining interests in cable
channels USA Network, Sci Fi Channel and Trio, as well as USA Studios, to
Vivendi for about $11 billion.

That deal created VUE and left Diller with his online assets -- including
Ticketmaster Online and -- and home shopping channel HSN Inc., which
he collectively renamed USAi.

Diller also took on the dual role of chairman of VUE, splitting his time
between managing the entertainment giant and USAi.

But since then, Vivendi has struggled to manage its debt, and in July, it
replaced flamboyant chairman Jean-Marie Messier -- who cut the deal with Diller
-- with Fourtou. Shortly after coming on board, Fourtou announced an ambitious
plan to shed about $10 billion of Vivendi assets to pare down debt.

Although much of that has been accomplished through the sale of its
publishing division and part of its stake in water utility Vivendi Environment,
VUE is Vivendi's most valuable asset. While Fourtou has insisted in the past
that VUE was not for sale, part of the reason could be the restrictions inherent
in the USAi deal.

As part of the USAi agreement, Vivendi could be on the hook to pay the online
company as much as $2 billion for tax liabilities should certain VUE assets be
sold. In addition, Diller himself owns a 1.5 percent stake in VUE that Vivendi
would have to buy back for at least $275 million in the event that it sells the
entertainment assets.

When asked during the conference call what price Diller would accept in a
buyout, Fourtou declined to be specific.

"We have the willingness to unwind that," he said. "There will be some
negotiation, of course, if so was the case. It's a bit complex."

Buying out Diller and USAi would appear to pave the way for a sale or spinoff
of VUE, which includes the cable assets, the Universal film studio and Universal
Music Group. Vivendi already received an unsolicited offer for VUE from Texas
oil billionaire Marvin Davis last month, but it rejected the $20 billion

But Davis' interest effectively put VUE in play.

Diller has also been rumored to be working with Liberty Media Corp. on a
similar deal for VUE whereby Liberty would combine its Starz Encore Group LLC
premium-cable networks with VUE and spin it off in a public offering of

Although Fourtou admitted that he hasn't had much time to spend on the U.S.
assets, he said that for the moment, Vivendi will stick with Diller's current
strategy of building the company.

"This is the present strategy Vivendi is following, but we will consider
other possibilities," he added.