Distancing Diller

Settlement clears path for NBC U merger

Vivendi Universal extracted a major thorn from its side Wednesday, settling an outstanding dispute with Barry Diller’s InterActiveCorp and sparing both parties a trip to a Delaware courthouse next month.

Vivendi and InterActive settled on terms compelling Diller to accept a 20-year, $750 million letter of credit to cancel out any veto rights relating to the company’s Class A preferred shares in Viv U Entertainment. Accepting the letter of credit means IAC cannot block the sale or transfer of any VUE assets and clears the path for a final closing of the merger with NBC in the next few weeks.

Settlement does not, however, resolve how, when or even if Diller will ultimately be extricated from the NBC-Universal shareholding structure.

Vivendi was forced to sue Interactive last month when Diller’s company refused to relinquish his rights over the preferred stake in exchange for letters of credit offering the same face value. Observers say Diller was holding out to secure a better deal for his equity stake in VUE.

Vivendi agreed to dismiss the lawsuit after the letters of credit are issued and accepted at the closing.

Though the class of preferred shares in question are just one of three separate holdings InterActive has in VUE, Vivendi indicated that it has now met all of its responsibilities for resolving Diller’s claims on the company. Still to be determined is how much it could cost to buy the tough negotiating Internet mogul out of his combined 7% common equity stake in VUE.

Diller is guaranteed a juicy $275 million for his personal 1.5% position in VUE — a price well in excess of the current valuation of the company. The exit options for InterActive’s 5.4% stake are less clear. IAC has the right to “tag along” with the NBC merger and convert its VUE holding into a smaller, roughly 2% share in the new NBC Universal. Alternatively, it can maintain is current position, with a strong board position, in the VUE partnership that will remain for tax purposes even after the merger closes.

Several sources say Diller could make a sufficient nuisance of himself on the NBC U board to pressure the Peacock to buy him out at a higher rate.

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