Fate of Universal Suddenly Uncertain

With the imminent departure of Vivendi Universal’s chairman, Jean-Marie Messier, the big question in Hollywood is what becomes of the U.S. entertainment holdings bought by the French water giant during the last two years.

The answer: They could be put up for sale or spun off, creating even more anxiety for entertainment divisions that have been riven by turmoil for nearly a decade because of management upheaval under three separate owners.

Messier’s resignation after a rocky two years was cheered by some within Universal’s ranks. “We’re thrilled,” said a top executive. “Nothing could be worse than having someone who Wall Street and the markets have no faith in.”

But the uncertainty could in fact get worse.

For months, speculation has circulated on Wall Street that Vivendi would be forced to spin off entertainment assets to reduce its $30-billion debt and reverse its stock free fall. Those assets include Universal Music, the world’s largest recording company, and Vivendi Universal Entertainment, the movie, television and theme-park group run by media mogul Barry Diller.

Under one scenario, Diller would buy these entertainment assets, despite his well-known contempt for the poor economics of the movie business. The rest of the company’s vast holdings would remain under French control.

As money manager Mario Gabelli of Gabelli Group put it: “Render unto Hollywood the things that are Hollywood’s and unto France the things that are French.”

Under Gabelli’s solution, embraced by many on Wall Street, Vivendi would keep the French water company, called Vivendi Environnement, as well as its wireless holdings and Canal Plus, Europe’s largest pay-television provider.

The U.S. entertainment assets would be turned into a new company headed by Diller and controlled by Vivendi’s current shareholders. Or the assets would be sold to the highest bidder for a price analysts estimate at more than $20 billion. One obstacle to any sale or spinoff, Gabelli said, is how Vivendi would divide its huge debt among its subsidiaries.

Although Diller declined to comment on his plans Monday, Gabelli speculated that the entertainment executive has positioned himself to assume control of the entertainment assets. Just months ago, Vivendi paid $10 billion for the television properties of Diller’s USA Networks Inc., including its cable channels--USA Network and the Sci-Fi Channel. Diller retained control of the now renamed USA Interactive Inc., primarily an Internet company.

As part of the deal, Diller agreed to help Messier by heading up the newly created Vivendi Universal Entertainment company. Despite speculation that Diller was interested only in broadening his Internet empire, sources within the company say he has taken his new job seriously. Sources say Diller’s top executives have been visiting bond-rating agencies to discuss the possibility of Vivendi Universal Entertainment’s becoming a stand-alone public company.

Still, executives close to Diller say his company, USA Interactive, will not participate in any potential purchase of Vivendi’s entertainment group. Sources also say that Diller has no interest in Vivendi’s music business, which is plagued by surging piracy, rising costs, shrinking profit and rebellion in its artist ranks.

Beyond Diller, analysts are hard pressed to name other potential suitors.

Most media stocks have taken a beating in the current market and therefore are not well-positioned for a $20-billion acquisition.

What’s more, few have major holes in their corporate portfolios after a decade-long wave of consolidations. Viacom Inc. is the fittest of the top five media conglomerates, the others being AOL Time Warner Inc., Vivendi, Walt Disney Co. and News Corp. But the company has little interest in assets other than cable channels or TV stations.

DreamWorks SKG, the upstart studio owned by Steven Spielberg, David Geffen and Jeffrey Katzenberg, could use Universal’s size to compete against the entertainment company giants. But the deal is too big for the privately held company to pull off.

Universal would give NBC the movie and TV production assets it lacks. But NBC, the only television network not paired up with a Hollywood studio, has insisted that movie making is an unnecessary risk and has managed to maintain its lead in the ratings without being part of the “vertical integration” trend followed by others.

Bertelsmann, the privately held German media giant, has the size to pull off such an acquisition. A major force in television in Europe, the company has been eager to expand in music and enter the U.S. television business. But with Universal, Bertelsmann could run into the same antitrust hurdles that prevented its acquisition of music giant EMI Group.

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Times staff writers Tom Mulligan, Claudia Eller and Chuck Philips contributed to this report.

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Revolving Door

Universal Studios has had four owners in the last 12 years. The entertainment conglomerate may see another change in the executive suite with the apparent resignation of Vivendi Universal Chief Executive Jean-Marie Messier.

A chronology of key management changes at Universal Studios:

1959: Entertainment mogul Lew Wasserman’s MCA buys Universal Pictures’ studio lot in North Hollywood.

1962: MCA buys Universal Studios and its parent company, Decca Records. MCA says it will liquidate its talent agency and concentrate on film production.

1990: MCA agrees to be purchased by Japanese electronics conglomerate Matsushita Electric Industrial for $6.6 billion--the largest purchase of an American firm by a Japanese company. Matsushita President Akio Tanii envisions meshing his firm’s consumer electronics business with the “software” of Hollywood entertainment. There are complaints about the deal, however, because some see it as a sellout of American culture. In the coming years, Wasserman is frustrated by his Japanese bosses, who spurn his efforts to expand MCA through deals such as acquiring CBS.

1995: Canadian liquor giant Seagram buys 80% of MCA for $5.7 billion. Seagram’s foray into entertainment is led by beverage heir Edgar Bronfman Jr. The company later is renamed Universal Studios.

2000: French water utility company Vivendi agrees to buy Seagram, which includes Universal Studios and Universal Music Group, in a $34-billion stock swap. Vivendi Chairman Jean-Marie Messier envisions an international entertainment conglomerate to compete with AOL Time Warner, News Corp., Viacom and others.

2001: Vivendi agrees to purchase the film and television businesses of Barry Diller’s USA Networks for $11 billion.

2002: Five Vivendi Universal board members resign over Messier’s strategy. The company is sagging under $30 billion in debt and a slumping stock price. Some reports name French pharmaceutical executive Jean-Rene Fourtou as interim Vivendi CEO.

Source: Times research