USAI sitting pretty

Diller ponders Viv U stake amid stronger Q1

USA Interactive chairman Barry Diller said Thursday that his company’s stake in Vivendi Universal Entertainment is the “only one lingering piece of the puzzle that needs final resolution” as USAI fires on all cylinders.

The stock surged more than 9% to $32.68 after USAI posted sharply narrowed losses and strong growth across the board in the first quarter.

USAI also has more than $4 billion in cash in its coffers.

Diller resigned as CEO of VUE in March, citing conflict of interest. He said he plans to cash in USAI’s preferred VUE shares, representing about 5.4% of the company, over the next six to 12 months. He’ll turn the stake into some more liquid currency or exchange it for “something else of substantially greater value.” His comments keep the door open for Diller to sell, or to join forces on a bid for VUE to create a new entertainment entity around VUE assets.

Viv U chairman Jean-Rene Fourtou formally put the VUE assets up for sale this week with bids expected by late May to early June. VUE houses Universal Studios, Universal Music, the USA and Sci-Fi cable networks, theme parks and games.

Viv U would owe Diller a hefty tax payment if it sold VUE in pieces, which is why the French conglom is now only entertaining offers for all of VUE. USAI and Vivendi are also embroiled in a separate $600 million tax dispute. Vivendi “will be paying the taxes that are appropriate in the very near term,” Diller said.

“Our primary motivation is to turn a relatively ‘passive’ asset on our books into the equivalent of cash, which we can then use either to acquire new businesses, invest in our current ones” or buy back stock, Diller said in a letter to shareholders posted Thursday and during a conference call with analysts to discuss USAI’s stellar quarterly results.

“We are the only company that is looking at interactivity across the whole spectrum,” Diller said of USAI’s varied assets, which include Expedia, Hotels.com, Match.com, CitySearch, Ticketmaster and Home Shopping Network.

Net losses narrowed to $112 million from $439 million. A figure USA called “adjusted” net income, which includes mergers and excludes one-time items, rose 156% to $110 million. Revenue grew 38% to $1.4 billion.

This was the first time USA consolidated the results of all its major units, after buying in Ticketmaster and announcing plans to do the same with Expedia and Hotels.com. The moves simplify the company’s corporate structure, although it made for a complex maze of numbers in the earnings report.

Net losses included a $245 million charge representing USAI’s share of a giant $4.5 billion writedown that was announced by Vivendi for calendar 2002 to account for a decline in the value of its assets — including VUE. USA said it does not believe the writedown affects the value of USA’s preferred interests in VUE, which, under the terms of the agreement between USAI and Viv U, “do not vary based on the value of VUE’s businesses.”

Diller wrote that on May 7, the day USAI sold its entertainment assets to Vivendi, “We went from a media entertainment company with e-commerce interests to an interactive transaction company. From that moment, we were a company transformed.”

The mogul has taken pains to convince USAI shareholders that he’s not interested in pursuing other acquisitions in entertainment besides finding the most lucrative settlement for the VUE stake.

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