Vivendi moves spark talk of Universal's future
By Sue Zeidler
LOS ANGELES (Reuters) -- Embattled French media giant Vivendi Universal's goal to sell $10 billion in assets, has left many wondering if the French media giant will be the latest company to retreat from Hollywood.
Vivendi Universal saw its stock spiral downward Wednesday after it reported a $12.1 billion net loss for the first half of 2002 and had its credit ratings slashed to "junk" levels by Standard & Poor's credit rating agency.
The Paris-based company also put U.S. publisher Houghton Mifflin, which it acquired last year for $2.2 billion, on the sales block as part of its ongoing strategy to shed assets and pare down a $19 billion mountain of debt.
But the real question in Hollywood is what becomes of Universal Studios and sister company Universal Music Group.
"There's a tendency among executives in situations like this to stay with what they know and since they (Vivendi) are not that comfortable with the entertainment business, selling the studio and music company could be the way they choose to go," said veteran entertainment lawyer Jay Cooper.
Acquiring those assets was the brainchild of former CEO Jean-Marie Messier, who was chasing a dream of transforming the staid water company, Vivendi, into a media conglomerate.
He spent lavishly to buy flashy properties like Universal Music Group with artists Sheryl Crow and U2, moviemaker Universal Pictures and the USA cable TV network.
But Messier was ousted in July and replaced by Jean-Rene Fourtou, former head of a pharmaceutical company. Fourtou is bent on stemming losses, boosting cash flow and bringing the towering debt under control by dismantling the house Messier built.
Deal proponents say the entertainment assets are at bargain prices due to the current weakness in media stocks. Naysayers cite obstacles like the weak economy, tough times in music, and a cash-squeeze among the few would-be buyers.
In any event, industry sources said the Vivendi entertainment divisions will likely be the last on the list of Fourtou's asset sale plans because they are the most prized.
MANY DIFFERENT OUTCOMES
Vivendi Universal's entertainment assets not long ago were seen fetching $40 billion, but now analysts price the group at around $20 billion to $25 billion.
On Wednesday, the company reported Universal Music Group's sales fell 4 percent to $2.9 billion, while operating income fell 45 percent, excluding unusual gains, for the first half.
Vivendi Universal Entertainment, which includes the movie, TV and theme park operations, saw 46 percent sales growth mainly due to the impact of acquiring USA Networks in May 2002.
On a pro forma basis, revenues grew 21 percent, while operating income grew by 36 percent in 2002's first half.
"The film studio has had a great two- to three-year run and it's at the top of its game, while the music business has done relatively well in a difficult market," said Hal Vogel, a media analyst and president of Vogel Capital Management.
"But it's going to be hard to grow rapidly from here over the near-term and they may even slip back a little bit. Today these assets would not fetch north of $20 billion," he said.
The usual suspects of acquirers, however -- such as Walt Disney Co., News Corp. Ltd., and AOL Time Warner Inc. -- either lack the stock currency or cash to do a deal or are struggling with debt, too, Vogel and others said.
Still, Hollywood loves to spin yarns, and there is talk of management buyouts of various divisions, investor-led buyouts and even a deal with privately-held DreamWorks SKG, formed by Steven Spielberg, Jeffrey Katzenberg and David Geffen.
"(Dreamworks) has tons of money lines, and Geffen and Spielberg already have decades-long relationships with Universal. An acquisition like this would give them a bigger playing field and infrastructure," said one industry player.
Dreamworks was not immediately available for comment.
Another scenario has Vivendi Vice Chairman Edgar Bronfman Jr. leading a investor buyout and installing Vivendi Universal Entertainment head Barry Diller atop the new company.
Diller in May sold USA Network's entertainment assets to Vivendi Universal. He was unavailable for comment on Wednesday.
08/15/02 06:01 ET
By Sue Zeidler
LOS ANGELES (Reuters) -- Embattled French media giant Vivendi Universal's goal to sell $10 billion in assets, has left many wondering if the French media giant will be the latest company to retreat from Hollywood.
Vivendi Universal saw its stock spiral downward Wednesday after it reported a $12.1 billion net loss for the first half of 2002 and had its credit ratings slashed to "junk" levels by Standard & Poor's credit rating agency.
The Paris-based company also put U.S. publisher Houghton Mifflin, which it acquired last year for $2.2 billion, on the sales block as part of its ongoing strategy to shed assets and pare down a $19 billion mountain of debt.
But the real question in Hollywood is what becomes of Universal Studios and sister company Universal Music Group.
"There's a tendency among executives in situations like this to stay with what they know and since they (Vivendi) are not that comfortable with the entertainment business, selling the studio and music company could be the way they choose to go," said veteran entertainment lawyer Jay Cooper.
Acquiring those assets was the brainchild of former CEO Jean-Marie Messier, who was chasing a dream of transforming the staid water company, Vivendi, into a media conglomerate.
He spent lavishly to buy flashy properties like Universal Music Group with artists Sheryl Crow and U2, moviemaker Universal Pictures and the USA cable TV network.
But Messier was ousted in July and replaced by Jean-Rene Fourtou, former head of a pharmaceutical company. Fourtou is bent on stemming losses, boosting cash flow and bringing the towering debt under control by dismantling the house Messier built.
Deal proponents say the entertainment assets are at bargain prices due to the current weakness in media stocks. Naysayers cite obstacles like the weak economy, tough times in music, and a cash-squeeze among the few would-be buyers.
In any event, industry sources said the Vivendi entertainment divisions will likely be the last on the list of Fourtou's asset sale plans because they are the most prized.
MANY DIFFERENT OUTCOMES
Vivendi Universal's entertainment assets not long ago were seen fetching $40 billion, but now analysts price the group at around $20 billion to $25 billion.
On Wednesday, the company reported Universal Music Group's sales fell 4 percent to $2.9 billion, while operating income fell 45 percent, excluding unusual gains, for the first half.
Vivendi Universal Entertainment, which includes the movie, TV and theme park operations, saw 46 percent sales growth mainly due to the impact of acquiring USA Networks in May 2002.
On a pro forma basis, revenues grew 21 percent, while operating income grew by 36 percent in 2002's first half.
"The film studio has had a great two- to three-year run and it's at the top of its game, while the music business has done relatively well in a difficult market," said Hal Vogel, a media analyst and president of Vogel Capital Management.
"But it's going to be hard to grow rapidly from here over the near-term and they may even slip back a little bit. Today these assets would not fetch north of $20 billion," he said.
The usual suspects of acquirers, however -- such as Walt Disney Co., News Corp. Ltd., and AOL Time Warner Inc. -- either lack the stock currency or cash to do a deal or are struggling with debt, too, Vogel and others said.
Still, Hollywood loves to spin yarns, and there is talk of management buyouts of various divisions, investor-led buyouts and even a deal with privately-held DreamWorks SKG, formed by Steven Spielberg, Jeffrey Katzenberg and David Geffen.
"(Dreamworks) has tons of money lines, and Geffen and Spielberg already have decades-long relationships with Universal. An acquisition like this would give them a bigger playing field and infrastructure," said one industry player.
Dreamworks was not immediately available for comment.
Another scenario has Vivendi Vice Chairman Edgar Bronfman Jr. leading a investor buyout and installing Vivendi Universal Entertainment head Barry Diller atop the new company.
Diller in May sold USA Network's entertainment assets to Vivendi Universal. He was unavailable for comment on Wednesday.
08/15/02 06:01 ET