Viv U banks BSkyB stake in Germany

Conglom to take interest in U.K. satcaster with Deutsche Bank for up to four years

PARIS — Vivendi Universal has hit upon a roundabout way to meet a European Commission demand that it part with its 21% stake in BSkyB.

The conglom has agreed to park its interest in the U.K. satcaster with Deutsche Bank for up to four years in exchange for 4.2 billion euros ($3.9 billion) in cash.

Agreement, which the German bank described as a collateralized loan but Vivendi said qualifies as a sale under U.S. and European accounting rules, lets the conglom avoid a hasty divestiture at a potentially unattractive price when the EC-imposed deadline rolls around next summer.

“We’ve given ourselves four years to dispose of BSkyB in the best conditions for our shareholders,” Vivendi chairman-CEO Jean Marie Messier told reporters Tuesday during a meeting and conference call to discuss the conglom’s first-half results and financial outlook.

Despite a weak ad climate and the destabilizing terrorist attacks Stateside, he promised Vivendi will meet its targets this year and next — unlike AOL Time Warner, Viacom, Walt Disney, EMI and a host of smaller players who acknowledged in recent days they won’t make their numbers.

He cited Vivendi’s “strong defensive qualities,” including limited dependence on advertising compared with its peers and a large chunk of revenue (44%) from pay TV subscriptions.

Vivendi stock eased 1.44% to $44.35 in New York on Tuesday. Messier said the company will use about a third of the fresh cash from the BSkyB deal to repurchase 33 million shares, 3% of Vivendi’s shares outstanding. The rest will go mostly to pay down its $7.9 billion in debt.

Once bought in, the shares will be canceled in a move that will enhance the company’s earnings per share.

Transaction with Deutsche Bank values BSkyB shares at about 650 pence ($9.56). At that price, Vivendi would realize a capital gain of $2.4 billion.

However, Messier said the conglom will remain exposed to any fluctuation in BSkyB’s stock price, with adjustments made quarterly, until the partners come up with a “final exit” strategy for the stake. That means Vivendi may take in additional cash or have to give some back from quarter to quarter until at least September 2005. Messier is banking on the shares going up in the longer term.

Murdoch interested

Rupert Murdoch’s News Corp. owns 38% of BSkyB and would like to buy the remaining stake to wrap into its Sky Global Networks worldwide satellite platform. There has been speculation that Vivendi may trade the BSkyB stake for Liberty Media’s piece of USA Networks.

Euro regulators insisted on the sale by June 2002 as a condition of approving Vivendi’s purchase last year of Universal parent Seagram.

On the financial front, Messier affirmed that operating cash flow will rise 35% this year, to about $4.6 billion, on a 10% boost in revenue. He’s still comfortable with predictions of 2002 cash flow at about $5.5 billion.

The first-half figures were largely a reprise of numbers released in July, when Vivendi reported a strong showing at its media and communications businesses. A net profit figure of $970 million included water and waste management unit Vivendi Environment.

Hoisting piracy software

Vice chairman Edgar Bronfman Jr. revealed that Universal Music Group soon will introduce antipiracy CD software. “We are very conscious that serving and pleasing (music customers) is the thing we do to earn money,” Bronfman said, but music consumption should not be about “depriving artists and rights holders from their rightful dues.”

Vivendi U plans to debut its PressPlay music online service, a venture with Sony Music, sometime in the fourth quarter. Launch has been postponed several times, most recently due to the Sept. 11 tragedy.

Bronfman also noted that U’s Interscope Records will release at its own cost a CD of the recent all-network, all-star telethon to raise additional money for charities and families of those killed in the terrorist attacks.

As for Vizzavi, the conglom’s much-maligned Web portal, it currently boasts 4.2 million clients, Messier said, and Vivendi is committed to the venture.

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