Vivendi pens first page of synergy saga

Biz exex have mixed reactions to Diller ascension

Vivendi Universal topper Jean-Marie Messier and USA Networks chief Barry Diller were all smiles Monday as they spoke loftily of synergies and benefits from their $10.3 billion plan to bring most entertainment assets of USA — and Diller himself — into Vivendi U.

But aside from Diller’s new role running the French conglom’s expanded mix of businesses, some industry insiders viewed the much-anticipated agreement as simply restoring the onetime status quo at U.

“For them to get all wet and teary about this deal is ridiculous,” one media vet observed. “Barry really took Edgar downtown, and now they’re just getting that stuff back.”

Now, though the cash involved is the same as in the first transaction, most observers figure Vivendi U is paying at least a $2 billion premium due to changes in USA share prices since Bronfman’s 1997 TV selloff. But the math is slippery, and Messier asserts the original transaction and the new agreement rep roughly a wash in costs to the conglom.

Perhaps the most intriguing aspect of the announced agreement is what it portends of possible further transactions. USA execs are vocal about wanting to use proceeds from the deal to fuel important new acquisitions by USA Interactive — with floated as the sexiest possible takeover target among several high-profile possibilities.

Even more attention-getting is their floated openness to considering an eventual merger of USA Interactive and Vivendi U. Adding fuel to that fire is a corollary to Monday’s pact that gives Vivendi U warrants to buy more than 60 million USAi shares over the next 10 years.

“So, you’d be creating something like another AOL Time Warner,” one USA exec suggested.

“I would assume that they would want to consolidate it all at some point,” said John Miller, managing director of JPMorgan Securities. The investment bank is particularly active in Hollywood mergers and acquisitions.

But like many observers, Miller was mostly focused on the short-term ramifications of the deal for now.

“We think Barry’s one of the best media executives there is,” the banking vet said. “So for Vivendi to bring him into their management fold is a real coup. The only shocking thing is I thought Barry would never ever go back to work for another corporation again.”

And there’s the rub: How will his return to an exec hierarchy with someone else on top work out? Also, there’s the question of how well Universal Studios prexy Ron Meyer and U Pictures boss Stacey Snider –despite agreeing to long-term renewals — will work under the irascible Diller. The two film execs have thrived in the past year, unleashing such blockbusters as “The Mummy 2” and “The Fast and the Furious.”

“Snider and Meyer have done a terrific job of getting that studio back on track, and I hope this isn’t disruptive to them,” mused one industry insider with regular dealings on the U lot. “Barry has a reputation for being extremely difficult.”

But Diller, who has no employment contract and won’t be drawing any salary, insisted at the conference that, despite the new layer of management in Vivendi U’s entertainment business, he had no plans to tamper with what is clearly working.

“I’m a complete supporter of what they have done,” Diller said of Meyer and Snider at the conference. “I can’t imagine that there will be any disruption of any kind.”

Perhaps no one in Hollywood is better positioned to comment on Diller’s management style than Disney chairman-CEO Michael Eisner, who worked for Diller at Paramount in the 1970s.

“I think Messier is a genius to get Barry back full time; it’s a stroke of brilliance,” the Mouse House topper enthused. “The creation of intellectual product seems to be simple, but as people find out over and over again, it’s actually extremely difficult. For them to get an executive — who also picks executives well — to be responsible for the creation of product is unusual and fabulous.”

He added that “whatever rough edges people are trying to identify in Diller, I haven’t seen them in two decades.”

Asked if Diller displayed any such rough edges at Par, Eisner quipped, “No rougher than mine.”

Meanwhile, there are also those who question whether the idea of a Vivendi/USA Interactive merger reps anything more than exec spitballing.

“From Barry’s perspective USA Interactive is his wealth-creating vehicle,” said one industry vet. He insider add that Vivendi U should be prepared to pay dearly for any eventual combo with the digital group.

Putting pieces back together

“They’re laboring mightily to put a positive strategic spin on this, but let’s face it: They’re paying to reacquire the assets they once owned,” the industry insider said.

Entertainment vet Frank Biondi, a partner at the Waterview Partners media fund these days, exited his U exec post in 1998 in a falling out with Bronfman many have tied to Biondi’s opposition to the TV selloff. “Even back in ’98, we thought these assets were an integral part of Universal and belonged there,” Biondi acknowledged. “So it’s nice to see them back.”

In fact, Biondi lobbied for getting back into the TV biz only months after Bronfman’s selloff with a proposal to take over Brillstein-Grey Communications. Instead, Biondi was ousted.

Diller, who also led the Fox studio for a stretch before striking out on his own to found what eventually evolved into USA Networks, will be chief exec of Vivendi Universal Entertainment. He will have ultimate oversight of Vivendi U’s newly expanded film, TV and recreation divisions.

Diller will hold the same title at USA Interactive, which comprises the old USA’s transactional businesses, including the Home Shopping Network, Ticketmaster and Expedia.

Meyer will serve as Diller’s second-in-command at VUE. In turn, Meyer will supervise Snider, U Recreation Group topper Tom Williams and Michael Jackson — the ex-Channel Four exec whom Diller installed to run USA’s entertainment properties just weeks before the Vivendi deal heated up. Doug Morris, who runs the highly successful U music arm, will continue to report directly to Messier.

USA stake finances deal

The bulk of the financing for the deal will come from Vivendi U’s 43% stake in USA Networks — worth roughly $7 billion — which will revert to USA. Vivendi U will also hand over roughly $1.6 billion in cash, raised partly through the recent sale of some of the French conglom’s interest in British satcaster BSkyB.

At the end of the day, Vivendi U will hold a 93.5% interest in the VUE division, while USA Interactive will own 5.5%, Diller 1.5%.

Vivendi U has also struck a deal with media mogul John Malone to buy out the 21% USA Networks stake held by the exec’s Liberty Media Group in a deal that nets Malone 20% of USA Interactive, plus $1.6 billion in Vivendi U treasury shares — equivalent to a 3.6% share of the conglom’s equity.

Lee Masters, president of Malone’s Liberty Digital unit, said Malone’s desire to extend his stake to the new Vivendi USA is consistent with his investment strategy over the years.

“Historically,” Masters said, “Malone invests in programming assets and then parleys them up for more valuable stakes in bigger entities.”

Diller deal entices Malone

What makes the Vivendi strategy even more enticing for Malone is that Barry Diller has agreed to stay on to run the combined company, Masters said.

“Malone has the greatest respect for Barry, whose participation only reinforces Malone’s investment strategy,” he added.

Messier stressed repeatedly at the conference that the structure of Monday’s pact was consistent with the deal done by Edgar Bronfman when his entertainment and beverage conglom Seagram (later merged with Vivendi) sold the TV assets to Diller in 1997. That deal, however, valued the USA stake at just over $4 billion.

“We are fully taking the advantage back of the initial transaction originated by Edgar Bronfman,” Messier said at the conference. “To have a step two, you need to have a step one.”

Shares of both companies surged in Wednesday’s trading: Vivendi U moved ahead 6.4% to $52, while USA Networks stock gained 5% to $25.

(John Dempsey in New York contributed to this report.)

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