Mon, Sep 02, 2002 page12

• Vivendi may soon return to its roots

  CONTRACTION The France-based conglomerate seems to be about to sell off some of its businesses and property in an effort to satisfy creditors. But what will it sell?

  • NY TIMES NEWS SERVICE
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  For Jean-Rene Fourtou, the chief executive of Vivendi Universal, deciding which businesses to sell to stave off a cash crisis could prove the easy part. More difficult, according to analysts and company insiders, is figuring out which to keep.

  Fourtou, who last week won some breathing room from creditors by announcing a plan to sell US$9.8 billion worth of properties, mainly publishing and media businesses in the US, is now trying to map out a strategy to take the company forward.

  At the heart of that decision is whether to remain a media conglomerate with global aspirations, or return Vivendi to its French roots with a few key businesses in telecommunications, pay-TV and waste management.

  A decision is not expected until the board meets in September, and Fourtou has so far given no indication that he has made up his mind. But people taking part in Vivendi's discussions have said in recent days that they see signs that Vivendi is leaning toward the French solution.

  A spokeswoman for Vivendi declined to comment on the company's plans.

  But in an indication of how far reaching the potential overhaul may be, Fourtou is said to be examining several options for selling or forming new partnerships involving its vast American entertainment divisions, including Universal Studios and the USA Cable networks, both acquired from Barry Diller.

  Scenarios include spinning off the group, known as Vivendi Universal Entertainment and still run by Diller, to shareholders through an initial public offering; selling some assets piecemeal, or keeping them all in-house.

  The possible sale of these divisions would be motivated less by Vivendi's financial concerns than by a revised strategic plan. Those taking part in the discussions said Vivendi does not need to sell its American entertainment operations to help it manage its US$18.6 billion in debt.

  That is especially true now that Vivendi has earmarked several other units for sale in the next nine months, including the publisher Houghton Mifflin, a stake in satellite provider EchoStar Communications, and Telepiu, an Italian pay-television company. In total, these sales should raise about US$4.9 billion.

  Any further sales would therefore be an admission that the strategy put together by Jean-Marie Messier, the former chief executive ousted in June, is no longer viable. Messier transformed the company from a stodgy utility into a global media concern. But his aggressive acquisitions saddled the company with debt and appeared, to many investors, to lack a strategic justification.

  Fourtou's willingness to consider the sale of these operations is driven in part by the eagerness of possible buyers. Several have expressed an interest, including Liberty Media, controlled by the Denver cable magnate John C. Malone; Viacom, which owns MTV and Nickelodeon, and NBC, part of the General Electric Co, a person involved in Vivendi's discussions said. He added, however, that no talks are currently under way.

  Company spokesmen all declined to comment.

  Liberty Media, which owns both Discovery Network and the Starz cable network, is exploring an arrangement where it would merge these operations with Vivendi Universal Entertainment, which owns USA Networks, the Sci-Fi Channel, the Universal Pictures film studio and Universal's television studio, the persons involved in Vivendi's discussions said.

  That combination would give Vivendi Universal Entertainment enough heft to make it a more appealing spin-off, if Vivendi chose to sell a stake to the public.

  The future of Vivendi Universal Entertainment is important both for USA Interactive, Diller's own company, and for Diller personally. Last year Diller agreed to create a joint venture in which USA Interactive effectively sold its TV and film units to Vivendi for US$10.7 billion. USA Interactive got a 5.4 percent interest in the venture, along with Vivendi stock and cash. Vivendi owns 93 percent of the joint venture and Diller personally holds 1.5 percent.

  As part of the transaction USA Interactive got Vivendi Universal securities and other ownership interests that it valued at US$2.9 billion at the time of the deal, according to Richard Bilotti, a media analyst at Morgan Stanley. "If VUE does well, USA's stock will benefit," he said.

  Diller also cut a sweet deal for himself. In a little noticed footnote to documents filed with the Securities and Exchange Commission, Vivendi agreed to pay him US$275 million for his 1.5 percent stake in the company at any time after the first anniversary of the sale's closing. It was signed in May.

  But at Vivendi, the entertainment businesses are not the only ones under scrutiny. Fourtou is also mulling the possibility of selling more publishing assets, in addition to the planned sale of Houghton Mifflin, a person involved in company discussions said. Other operations included in the publishing division are video game makers based in the US, and a large educational publishing unit in Europe and Latin America.

  For the most part, though, the units that have not been put up for sale -- at least not yet -- are French. They include Canal Plus, the French pay-television network; Cegetel, a French phone company, and Vivendi's remaining 42 percent stake in Vivendi Environnement, a water and waste management firm that was part of the original company.

  "It's back to the future," said Michael Nathanson, an analyst with Sanford C. Bernstein, explaining that recent comments by Fourtou suggest the new Vivendi may look very much like the old one.

  Nathanson said he was especially surprised by suggestions Fourtou made in a letter to shareholders that regaining majority control of Vivendi Environnement is a possibility.

  Under Messier, Vivendi had been reducing its stake in Vivendi Environnement. Some analysts questioned whether Vivendi would have the cash to buy back those shares. They noted that Vivendi Environnement took a step on Tuesday to distance itself from its parent, when bondholders voted to sever a link that could have placed it on the hook for 1.5 billion euros should Vivendi Universal default on its debt.

  Still, other observers said it made sense for Fourtou to reconsider Vivendi's position with regard to the waste management concern. "He understands environmental services better than he does media," Jens Jantzen of Bear, Sterns said.

  From that point of view, it makes sense to divest the US entertainment assets.Whatever the strategic decisions, Fourtou remains firmly wedded to Paris. He will not have an office in New York, unlike Messier, and has not yet toured the company's operations in the US.

  When he does come, he will not be staying at the luxury apartment in Manhattan that housed Messier.

  Unless Messier chooses to continue living there -- as he is now, according to a Vivendi official -- and pay the market rent of about US$60,000 a month, the apartment, like many of Vivendi's other American properties, will be put up for sale.
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