MGM Puts Hurt on VUE Auction Effort


With one major bidder out of the running — and the others appearing to be unwilling to pay a substantial premium — Vivendi Universal S.A.'s auction of its U.S. entertainment assets is in flux.

Last week, Metro-Goldwyn-Mayer Inc. took itself out of the running for Vivendi Universal Entertainment, saying Vivendi's asking price was too high.

"The VUE assets are attractive and would fit well with MGM," MGM chairman and CEO Alex Yemenidjian said in a statement. "Unfortunately, meeting the seller's current price expectation would not be consistent with our valuation of the assets.

"MGM is a disciplined buyer, and we will not pursue strategic opportunities, however attractive, unless we can do so on a basis that makes sense for our shareholders. We continue to have a high regard for Vivendi and its management."

The loss of MGM could be a major blow to the auction — although Vivendi downplayed its significance — in that MGM was thought to have the highest formal bid for VUE, at $11.5 billion in cash.

Other bidders for the assets — Liberty Media Corp., Viacom Inc., General Electric Co.'s NBC television unit and former Vivendi vice chairman Edgar Bronfman Jr. — are still in the running, but according to reports are quickly losing interest.

Comcast Corp. has looked at VUE's books, according to sources, but the company is not thought to be that serious about buying the assets. Last week, in a conference call discussing its second-quarter results, Comcast president Brian Roberts declined to talk about Vivendi but said Comcast — especially with a pending sale of QVC to Liberty — is ever-opportunistic, if a deal makes sense.

"We think we owe it to our shareholders to take advantage of the new platform and rapidly, radically changing balance sheet to look and evaluate new opportunities to see where the future is headed and to see how we can best create shareholder value, which is the No. 1 motivator at Comcast, in the years ahead," Roberts said, according to a call transcript.

Last Thursday, Viacom chairman Sumner Redstone, visiting investors in Germany, told Reuters news service that his desire for VUE has waned.

"Our interest is limited … We will pursue the auction diligently, but not aggressively," Redstone told Reuters.

Adding to the difficulty is the fact that the VUE assets appear to be on the decline. In the second quarter, revenue at VUE declined 15%.

"Vivendi would have a tougher time substantiating the higher valuation numbers," with the decline, said one source familiar with the matter. "Maybe that makes this more of a fire sale."

In a press release, Vivendi said the decline at VUE was due mainly to lower currency-exchange rates and poor performance at its theme parks. Excluding the impact of exchange rates, revenue declined about 4% in the period.

In the statement, Vivendi added that revenue at its Universal Television Networks — which include cable channels USA Network, Sci Fi Channel and Trio — rose 15% in the period, on strong advertising sales.

Janco Partners cable analyst Matt Harrigan said $14 billion is within his valuation range for the assets.

Harrigan puts the value of VUE at between $12.8 billion and $16 billion.

"MGM probably has more reason to want this," Harrigan said. "You look at Liberty and GE, they'd be delighted to get it at the right price and I don't think they are emotionally attached or have a strategic imperative to get it at the wrong price."

While NBC is thought to still be interested in a deal, reports have said that the broadcast network is most interested in a stock deal that would give Vivendi a minority interest in the combined entity. Although NBC was said to have included as much as $3 billion in cash in its bid, sources said that the bid only includes securities that could be monetized quickly, and not cash.