U studios stymied as Music blares

Film, TV operations have few bidders

NEW YORK — With all the sudden interest in Universal Music Group that’s cropped up recently, the folks over at Universal Studios must be feeling a bit like chopped liver.

Sumner Redstone, John Malone, Bob Wright and Alex Yemenidjian have all openly salivated over Vivendi Universal Entertainment’s platter of cable channels, USA and Sci Fi. And in the past few weeks, a number of unusual bidders for the music biz has emerged, thanks in part to some effective lobbying by UMG chief Doug Morris. Even Apple Computer chief Steve Jobs seems prepared to “think different” enough to consider a bid for the label.

But what about the TV and film studios, the hallmark of Viv U’s ill-fated expansion into Hollywood?

Numbers crunchers have long maintained that the film and TV studios, even with the healthy 3,000-title active library, will be hard-pressed to fetch a buyer willing to value it at much over $4 billion at best.

That’s hardly chump change, but compared with music (consensus valuation: $6 billion) and USA Networks (around $7 billion), Ron Meyer and company would be right to feel a bit unwelcome at the bidding party Viv U is so determined — but so far largely unable — to host.

Indeed, though U’s studio biz generates about $5 billion in revenues, buyers these days are focused more on profit margins than on high-profile assets.

And while MGM or DreamWorks would love the opportunity to make a bigger love nest by merging with U Studios, a lack of financial clout makes it hard for them to solve Viv U’s most immediate problem: finding cash to pay down debt. And most think it unlikely Viacom or NBC would want to be weighed down by a studio operation. Even the one Hollywood major that could seriously benefit from owning U’s library — Disney — is under too much economic duress to be a buyer.

The seeming dearth of interest in a solo cash offer for the studio goes to the heart of Viv U topper Jene-Rene Fourtou’s dilemma: Selling off the pieces will require much higher individual offers than selling the majority of its stock in VUE as a whole. That’s because a myriad of capital gains and other tax liabilities totaling well over $2 billion would kick in if the individual assets are sold off piecemeal.

That means the sum of VUE’s parts is probably worth less than the only offer so far on the table for the whole — the unusually patient “south of $20 billion” offered by Marvin Davis and ex-U exec Brian Mulligan.

In fact, they’re the only team brave enough in the market today to want to embrace and expand an entertainment conglomerate, warts and all, with the intention of floating it on the stock market within the next five years.

Viv U has been tightlipped about it, though. Sources say the Gallic company is using the private equity-backed offer as a benchmark and hoped to woo more lucrative offers. But so far, six months of playing hard to get have given Fourtou mostly news headlines.

Virtually every major buyer, from affluent but cautious NBC to cash-strapped MGM, has chatted informally with Fourtou and his bankers. Malone, meanwhile, may be too smart for his own good. Viv execs are said to be scared to death about the dealmeister’s hardball tactics. And since Malone filed a lawsuit against the company seeking redress from grievances over alleged financial misdeeds — Viv maintains the legal threat is simply a negotiating tactic — the tenor of talks has likely soured.

Barry Diller’s USA Interactive took a similar tack, suing Viv over a $620 million preferred stock tax payment it believes it’s due. Diller also took the legal opportunity to reassert his veto power over how VUE is disposed of.

Alas, it’s make or break time for Mssr. Fourtou.

In the next week or so, Viv U is expected to finally make detailed financial information about its entertainment properties available to bidders — a step that’s been a long time in coming.

Indeed, the longer the circus of confusion goes on, say staffers on the lot as well as investors, the more the assets on the block are being damaged — and the lower the eventual price Viv U might get for them.

“These are talent-based businesses, and talent tends to be nervous about signing a deal with a company whose future ownership is uncertain,” says one would-be buyer.

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