All eyes on Vivendi

It may own a mere 20% of NBC Universal, but Vivendi is calling the shots when it comes to whether the fabled movie studio and television company will end up in the hands of cable company Comcast Corp. or some other buyer.

That’s because every year in November, Vivendi can opt to sell its stake.

There’s also a little-known clause in the contract between Vivendi and General Electric Co., which owns 80% of NBC Universal, that gives the French media conglomerate veto power on any change in control.

Whether Vivendi decides to pull the trigger depends on a host of complicated factors, including the strength of the U.S. dollar and Vivendi’s appetite to make bold bets.

Vivendi probably would use the proceeds from the sale of its NBC Universal stake -- valued at $5 billion to $7 billion -- to finance acquisitions in video games and telecommunications, where it already is a major player.

And until a few days ago it looked like Vivendi had a use for that money: It was on the cusp of buying a Brazilian telecommunications firm until that deal was thrown into doubt by the emergence of a rival bidder offering more money.

Now without an acquisition immediately in its sights, Vivendi might decide to hold on to its NBC Universal stake for another year. But waiting carries risks. The recession could further depress the value of media companies despite a recent uptick in advertising. In addition, the dollar could continue to slide, which means Vivendi would realize less from a sale.

Vivendi “should be asking themselves the question: Is there further upside by staying in NBC Universal for another year?� said Claudio Aspesi, senior media analyst for Sanford C. Bernstein & Co. in London. “This might not be a bad time to sell.�

Indeed, not a bad time at all.

The French concern, founded 157 years ago as a water company, has carefully been piecing together assets to create a 21st century media operation. It owns the world’s biggest music company, Universal Music Group, and two years ago created a juggernaut in the video game world -- Activision Blizzard Inc. -- that produces the wildly popular titles World of Warcraft and Guitar Hero.

Vivendi also owns the No. 2 mobile phone company in France as well as leading pay TV service Canal Plus, and is staking a claim on the tech-driven future of entertainment by combining businesses on the leading edge of the digital revolution -- video games and music -- with cellphones and broadband Internet.

Although a possible deal with Comcast, the largest U.S. cable firm, for control of NBC Universal could still fall apart, the smart money right now is that an agreement would be reached because all the parties seem extremely motivated.

“It looks like Vivendi and GE are both a little bit pregnant,� said Bob Wright, former chairman of NBC Universal, who oversaw the company’s expansion into cable and production of television shows and movies during his 22 years there. “They have to do something.�

About three months ago, Vivendi executives privately indicated to GE that they were seriously considering selling the company’s stake, according to two people familiar with the situation who asked not to be identified because the talks were private. That led GE to line up a new partner, Comcast, which would own 51% of NBC Universal, with GE keeping 49%.

Vivendi’s directors could make their decision as early as Wednesday at a board meeting in Paris, but they are not expected to make an announcement until next month. The company declined to comment further.

Vivendi’s veto power gives the conglomerate the significant ability to extract the most favorable terms for its minority stake.

“It all comes down to a question of price,� said Wright, the architect of the 2003 deal that combined NBC with Vivendi’s entertainment assets, which included Universal’s movie studio, theme parks and cable channels.

Under Jean-Bernard Levy, a low-key engineer and former government bureaucrat who has led Vivendi for four years, the company has shed many operations it had bought in an acquisition binge that saddled it with more than $30 billion in debt.

Levy also defied conventional wisdom by holding on to Universal Music Group despite the industry being ravaged by piracy and technological change. The No. 1 record label has outperformed its peers and boasts artists such as U2, Eminem, Lady Gaga and the Black Eyed Peas.

In the last five years, Vivendi has improved its financial position and is now “looking at deals that would ignite growth,� said Aspesi, the media analyst. “This is a company with a good performance and relatively solid economics. But its operating earnings growth has been slowing.�

Vivendi’s desire to invest in fast-growing businesses led to the 2007 merger of the company’s video games unit with Activision. That created Santa Monica-based Activision Blizzard, headed by the outspoken Bobby Kotick, and catapulted it to the top of the industry. Activision Blizzard’s market capitalization of $16.1 billion is more than twice that of its major rival, Electronic Arts Inc. of Redwood City, Calif.

Although Activision Blizzard, like all video game publishers, has been affected by the slowdown in consumer spending, World of Warcraft continues to be a powerhouse. The online, subscription-based game generates profit margins of more than 40%, according to people close to the company. Typically, hit video games have margins of about 20%.

Activision Blizzard also has benefited from its corporate ties with Universal Music, whose artists frequently appear in Guitar Hero titles, lending a rationale to owning a record company when many investors have lost interest.

But like music, video games are migrating to the Internet. At a recent investor conference, Kotick said that in the future many games would be distributed electronically, without a console such as Sony’s PlayStation. That could lead to unique partnerships between Activision Blizzard and Vivendi’s telecommunications companies.

Vivendi might want to increase its stake in Activision Blizzard from 56%, acquire more video game companies or invest in the music industry. With the music industry in the midst of a multiyear downturn, Universal has launched several initiatives to grow in new areas, such as a partnership with YouTube on a soon-to-launch website focused on music videos.

“All the opportunities that Vivendi can capture take money. Some involve building their positions in existing business lines, others increasing their ownership stake in them,� said Bruce Hack, former chief executive of Vivendi Games. “Perhaps the cheapest source of capital Vivendi has right now is the passive stake at NBC Universal.�

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Times staff writer Richard Verrier contributed to this report.