Another thriller for Diller watchers

Mogul's bid for Viv echoes decade-old dealmaking

NEW YORK — What a difference a decade makes.

The last time bookies were running the odds on a Hollywood studio bidding war, Barry Diller’s QVC was squaring off against Sumner Redstone’s Viacom in a high-stakes race for Paramount.

That competition a decade ago was a hard-fought battle of wills (and rising pricetags) between two dueling moguls –each looking for deals that would catapult them to the top of a new vertically integrated media food chain.

As the hostile bidder, Diller famously managed to force Viacom to pay nearly $2 billion more than it planned.

In the end, that was little consolation for Diller.

Now 10 years on, and with a studio conceivably within his grasp again, Diller again is sidelined, having alienated the French and more than a few Universal execs in the same way that then Par chief Martin Davis had been irked by his advances.

His proclamations of non-interest and preference for interactive commerce notwithstanding, Diller could yet be vindicated by vetoing a deal or holding Viv U up in court.

To be sure, this summer’s long-overdue auction for Viv U entertainment assets is a very different melodrama, playing out on a very different economic field: The economy is down, the Gallic seller is not in a position to be choosy, and buyers are more ambivalent. But there are also similarities.

Then, like now, the seller is scared of predators but keen to foster a real bidding war to drive up the price.

Unfortunately for Vivendi, never have so many large media assets hit the market simultaneously and at such a depressed time.

Far from the two-horse race for Par in 1993, the year-long VUE fire sale has been a wearying affair. Never before have so many Hollywood rivals gotten to peek under the hood of so many businesses in the name of due diligence.

Unlike the bitter bidding battle between Viacom and QVC, where Diller’s desire to own the studio was strong enough to go to court (forcing Par’s board to consider QVC’s offer), few of the VUE bidders, with the possible exception of MGM, have a burning desire to win.

Today’s bidding is certainly more complex than the battle over Par a decade ago, though no less litigious.

As soon as Diller sought to break up Viacom’s Par play with a tender offer, Redstone went to court alleging antitrust.

But Diller’s QVC outwitted the Par legal team in a precedent-setting Delaware Supreme court case that broke up the “lock-up” agreement between Par and Viacom. In the end, it was a small victory, as Diller, fearful of paying too much and lacking the strategic synergies of Viacom, declined to up the ante.

Only time will tell what games of brinkmanship this summer’s second-round VUE contenders will play. But thanks to cheap financing, bidders like Edgar Bronfman Jr. and MGM have secured private equity backers who wouldn’t have touched a studio with a 10-foot pole just three years ago.

There are also more bidders and more possible combinations of outcomes, since the prospect of snatching a prized studio and TV operation from a distressed seller is too tempting for most healthy media titans to pass up.

But there may be less room for a prolonged bidding war for VUE, despite Fourtou’s wishes to create just that.

“The fact is, no one really needs to do this deal,” says Sanford Bernstein analyst Michael Nathanson.

And while the three top bidders will get another look at the books, the base valuations are unlikely to tip the scales much above $12 billion for the whole package of film, TV and theme parks.

Back in 1993, Par — like U today — was considered a high-risk investment.

What no one could have known was that Par was about to enjoy a string of hit movies, starting with “Forrest Gump.”

In the end, Viacom got a little lucky and a little smart. It immediately installed strong financial management and limited the downside risk of production by establishing co-financing schemes.

No doubt, the Par model will be very much on the mind of Edgar Bronfman, John Malone and Bob Wright as they proceed to refine their offers for U.

“Paramount was a question mark,” remembers Frank Biondi, president and CEO of Viacom at the time. “They immediately got a big hit with ‘Forrest Gump,’ but it was viewed as a higher-risk proposition. Universal right now is actually on a roll.”

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