Two bidders eye slice of UGC

Viv U offers 58% stake for $497 mil

PARIS — Vivendi Universal has received bids from two French private equity groups for its 58% stake in Gallic film group UGC, as the company continues its efforts to unwind its entertainment assets. The deal, which could line Viv U’s coffers with up to $497 million, would be a nice addition to its €7 billion ($7.4 billion) debt reduction plan for this year.

The two suitors for Europe’s largest movie theatre chain are LBO France and CDC Ixis, while the private equity arm of Gallic bank BNP Paribas has dropped out of the race, according to a report in French daily Les Echos.

Viv U declined to comment on any specific bidders for the stake.

There is, however, a fly in the ointment. The Verrechia family, which founded and controls UGC, holds a 19.7% put option that could force Viv U and any potential buyer to cough up a bundle. Furthermore, through a shareholder pact, UGC topper Guy Verrechia and other minority shareholders have the power to block any sale of the stake by Viv U.

The put option, which Viv U values at $79 million, but which is estimated at $142 million by Bear Stearns analyst Mark Harrington, could significantly lower the price of Viv U’s stake and almost cancel out any real profit on the disposal. Moreover a sale of the stake could immediately trigger the put option.

For Viv U’s part, the shareholder’s ability to block the sale would hinder any move by the conglom to wrangle out of the put option.

The corporate structure of UGC is unusual in that while Viv U is the majority owner, the Verrechia family runs and controls the film group. The shareholder pact and the put option are part of the internal defense against the family losing control of the company they founded. The Verrechia family may be likely to forgo the put option if it can work out a deal with Viv U and any potential buyer to continue to manage UGC without having to up their stake.

UGC would be a nice little prize for a potential buyer, with 850 movie screens across six countries and a 50% stake in France’s leading distrib UFD, a joint venture with Fox.

In 2002 UFD took the top spot among Gallic distribs, with a 12.7% market share, thanks to “Star Wars: Episode II — Attack of the Clones,” James Bond film “Die Another Day,” “Minority Report” and “Ice Age.”

The film group also boasts its own production company, UGC Images, which released four films last year, including “See How They Run” from Michel Blanc, which sold 1.5 million tickets in France.

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