NEW YORK — While the Apple intrigue certainly stirs up the Vivendi Universal deal-making stew, it does little to resolve the company’s dilemma over what kind of strategy to pursue.
A piecemeal sale of the Vivendi Universal Entertainment assets will likely trigger huge capital gains taxes for each of the three main pieces — cable channels, movie studio and music — on top of payments that will be due to Barry Diller and the Bronfman family.
Apple’s reported $6 billion valuation of U Music is in line with the value attached to the unit as part of the $20 billion Marvin Davis/Brian Mulligan private equity team bid. To justify selling off the pieces, Viv U will require considerably more for music unless it can find a buyer willing to pay upward of $8 billion for the cable assets (USA Network, Trio and the Sci Fi Channel) and more than $5 billion for Universal Studios. And that’s before the multibillion tax exposure is factored in. Under a break-up sale, Diller will be owed $700 million, according to Viv U’s calculations (Diller believes the figure is closer to $2 billion), while the Bronfman family would be owed another $2 billion for tax liabilities if the sale closes before 2005.
Fanning flames of distrust
Furthermore, if music chief Doug Morris is, in fact, behind Steve Jobs’ proposition, it might further antagonize the already smoldering distrust between Viv U topper Jean-Rene Fourtou’s team in France and its U.S. entertainment wards. Fourtou and much of his French exec team are more rooted in the pharmaceutical business and deeply suspicious of mysterious machinations of Hollywood’s power brokers.
The only thing that is clear is that the Viv U board has instructed Fourtou to dump the entertainment assets. Beyond that, say insiders, Viv has not yet formulated a clear disposal strategy for VUE. It continues to mull various configurations and chat informally with parties interested in certain assets. But the company seems almost paralyzed by fear of getting burned by savvy entertainment execs. The rumor mill is nonetheless on high octane, though Davis’ offer is the only firm one on the table.