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USA gets Sept. date

But judge urges Viacom, Seagram to end war

NEW YORK — A Delaware Chancery Court judge said Thursday that he will rule in September on the dispute between Viacom Inc. and Seagram Co. over their USA Networks partnership. But he urged the two companies to resolve their differences before then.

To make his point, Delaware vice chancellor Myron Steele told a folksy story about duck hunting with the punch line, “Be sure you have a firing pin before you shoot.” The parable was sufficiently enigmatic that both sides could have interpreted it as favorable to their cause.

Steele called Thursday’s hearing to ask questions after studying the proposals to break up the USA partnership that Viacom and Seagram each submitted last month. In a May 15 decision, Steele ruled that Viacom breached the USA Networks agreement by continuing to own and operate MTV Networks after acquiring Paramount Communications in 1994.

The USA Networks agreement signed by Paramount and MCA (since renamed Universal Studios by Seagram, which acquired 80% of the entertainment company in 1995) contained a clause that prohibited the partners and their affiliates from operating basic cable networks outside of the partnership. Seagram invoked this noncompete clause when it filed suit after Viacom launched the TV Land cable network in 1996.

Although Steele agreed with Seagram’s position that Viacom was in breach of contract, he noted in his 54-page opinion that USA had not suffered “immediate quantifiable harm” from the breach and that the network is “extremely well-run and profitable.”

The break-up plan submitted by Seagram gives Viacom two options: sell its MTV Networks or unload its 50% interest in USA and pay damages “to settle past liabilities arising from three-plus years of illegality.”

In response to a question from Steele on Thursday, Seagram attorneys Wachtell, Lipton, Rosen & Katz said that the company is asking for all of Viacom’s profits in USA Networks since 1994, but not the return made from investing these profits.

The USA Networks agreement contains a complex buy/sell mechanism that makes it difficult for either company to exit the partnership. In its plan, Viacom argued that an auction administered by a trustee is the best way to determine the market value of the cable net.

Seagram maintains the contract outlining the complex buy/sell procedure is binding and that the court is not at liberty to change it.

In Thursday’s hearing, Steele did not ask whether Viacom or Seagram has a timetable for breaking up the USA partnership.

Viacom’s shares closed up 44¢ to $30.88, while Seagram stock declined 44¢ to $38.31.

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