NEW YORK — It’s getting close to make or break time for Vivendi in its hostile negotiations with Barry Diller.
Sources say NBC chairman Bob Wright has laid down the law to Vivendi, declaring that it must resolve and unwind the Internet mogul’s outstanding holdings in Viv U Entertainment pronto and offering up all GE resources necessary to help Vivendi solve the matter. While few believe GE would go so far as to walk away from the acquisition should Vivendi fail to extract and pay off Diller and his InterActiveCorp, some say the U.S. conglom could threaten to pay less than the originally agreed price for VUE if certain issues are not resolved prior to merging.
While Wright has insisted publicly that resolving the “Diller question” is not a prerequisite to closing the NBC-U merger deal, several sources close to the company say the unresolved issue represents a huge impediment to a clean closure of the deal for GE shareholders.
NBC is anxious to close its merger with VUE — sans Diller or his InterActiveCorp in the new company’s capital structure — by early May. While it has no ability to speed up the Federal Trade Commission’s review, NBC is known to be closely involved in helping Vivendi resolve the vexing financial, tax and legal issues holding up the Diller “extraction.” GE lawyers have been made available to the Gallic firm, and Wright himself apparently has informed Diller that he wants a clean slate going forward.
In fact, some sources say the broad strokes for a deal may be afoot to unwind Diller’s VUE stakes. Resolution of the protracted talks between Vivendi negotiators and Diller to resolve his personal and corporate interests in U could come by early February, say sources.
One settlement scenario discussed would cede Viv U’s 56.6 million shares (roughly an 8% stake, currently valued at around $1.88 billion) of Diller’s InterActiveCorp back to the e-commerce company while paying off the balance of Diller’s personal 1.5% holding and his company’s 5.4% with some $300 million-$400 million in cash. Diller is thought to be seeking closer to $700 million in cash from the settlement.
Tax complexities and a virtual standoff with Vivendi chief exec Jean-Rene Fourtou have snarled talks in recent months. But NBC’s behind-the-scenes efforts to break the deadlock are considered essential. Fears that Diller might drag out negotiations for months and threaten a tidy completion of its merger with VUE apparently inspired Peacock chairman Bob Wright to get more involved.
Diller, meanwhile, has been playing the shrewd negotiator, claiming publicly that he’d be content to retain equity in NBCU should a suitable exit package not be forthcoming. However, GE has made it clear that it has no interest in extraneous shareholds in the new entity and wants Diller and InterActiveCorp out of the equity structure entirely. It has been forced to play the honest broker in the protracted talks that threaten to derail a timely closing on the deal.
Though the responsibility for settling Diller’s position has always rested with Vivendi, relations between the former co-CEO of Universal and Viv U chief Fourtou in the last year have eroded from bad to downright nasty. Since any delay in the resolution of Diller’s outstanding interests in Viv U could undermine NBC’s plans with U, Wright has been forced into the breach to try to mitigate the sour negotiating stalemate.
Speaking to investors at an Arizona conference early this month, Diller was dismissive of attempts to unwind his position. “We are not in negotiations,” Diller insisted, adding that “we have had some very senior and fairly superficial discussions with the chief executive of Vivendi about our mutual desire to unwind the VUE partnership and to, so to speak, settle all these things up,” he told the Smith Barney investor gathering.
Diller and Interactive’s convoluted holdings in Viv U include two classes of preferred shares in VUE, one class that’s backed by the 56 million InterActiveCorp shares and another class that has a face value of $750 million. Furthermore, Diller has a put agreement on his personal 1.5% stake in VUE that guarantees a minimum payback of $275 million. Viv U is no doubt frustrated by that amount, which would value VUE at some $18 billion, far more than even its most aggressive valuation of the NBC deal.
Besides Diller, NBC is cooling its heels as the Federal Trade Commission reviews the pending transaction. While network sources say there are unlikely to be major antitrust concerns (and certainly none that would stand up to precedent given Viacom’s permissible ownership of cable nets, a film studio and a broadcast network), the FTC is being careful to examine every angle of the deal. While NBC is believed to be aiming for a late April, early May close in order to facilitate its upfront program marketing season, regulatory delays could push closure to June or July. The European Commission has already approved the merger.
The NBC Universal integration team is still hammering out strategy and structural details for the pending merger. Budget adjustments are widely expected at Universal’s TV and film arms as the Peacock aims for as much as $600 million in cost reductions.