Don't Try Low-Balling on VUE

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Bids for Vivendi Universal S.A.'s U.S. entertainment assets are expected to begin coming in Monday [June 23], but the French conglomerate appeared last week to be sending a signal to those potential bidders: No low-ball offers allowed.

In discussing first-quarter results on a June 17 conference call, Vivendi Universal chief financial officer Jacques Espinasse said the French conglomerate would consider an initial public offering for its U.S. entertainment assets — Vivendi Universal Entertainment — just days before it is expected to begin fielding initial bids for those properties.

Vivendi has said in the past that an IPO was a possibility, but the declining stock market made it highly unlikely. But as the markets have rebounded in the past few months, Espinasse said that an IPO has re-emerged as an option.

"Given the return of the capital markets both in New York and Paris, we are also seriously considering as an alternative solution an IPO," Espinasse said on the call. "We do feel that is a realistic solution. It is not a fall-back solution, it is an alternative solution depending on the level of offers we will get."

Most observers believe the IPO threat is a ploy by Vivendi to boost the price of the VUE unit. Also last week, published reports said that Vivendi has made it clear that it will not accept bids for only pieces of VUE. Bids should be for the entire company or not at all. In the past, many potential bidders have expressed interest only in VUE's cable networks.

Vivendi has had VUE — which consists of cable channels USA Network, Sci Fi Channel, NewsWorld International and Trio, Universal movie studios and the Universal theme parks — on the block for months. At least six companies have expressed some interest in submitting bids for all or part of VUE: Liberty Media Corp.; General Electric Co.'s NBC television network; Viacom Inc.; former Vivendi vice chairman Edgar Bronfman Jr. (expected to team up with Cablevision Systems Corp. and several private equity firms); Metro-Goldwyn Mayer Inc.; and oil billionaire Marvin Davis.

Liberty chairman John Malone, speaking at Liberty's annual shareholder meeting in Denver June 18, said he doubted Vivendi would go through with an IPO for VUE.

"I basically doubt it," Malone said. "Vivendi's need for cash would make this the largest IPO in the history of the world in a business that's had a little trouble with their accounting in the last year or two. Those are not usually consistent outcomes."

Malone also squelched reports that Liberty would team up with Viacom or USA Interactive [now InterActiveCorp] chairman Barry Diller — the former co-CEO of VUE — on a bid. But he left the door open to partnerships.

"We're not explicitly working with Viacom at this time, although all bets are open," Malone said.

Malone added that Liberty also was not teaming with Diller on a bid, but said that after a successful bid it could find a way to work with the media mogul.

"I wouldn't rule out that after the fact, if we were a successful bidder, we would be wanting to have discussions USA Interactive about how to improve the relationship between the two entities," Malone said. "At the present time, we are on completely independent trajectories."

So far, only Davis has submitted a bid, $20 billion, which Vivendi rejected in November as too low.

Espinasse made it clear that Vivendi will not be forced to sell VUE for an unattractive price. "We are not in a corner," Espinasse said. "The process is clearly monitored, controlled and run by [Vivendi Universal]."

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