Don't believe the hype. Vivendi's Hollywood sell-off has fallen flat

The debt-laden French conglomerate is anxious to sell Universal Studios and its other US assets but potential bidders have run for cover, reports Andrew Gumbel in Los Angeles
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No self-respecting Hollywood power-broker would stoop so low as to hold a garage sale to sell off unwanted household gadgets. In Beverly Hills and Bel Air, people just don't do things like that. Which might explain the general disdain on the West Coast greeting Vivendi's efforts this summer to auction off its entertainment assets.

The heavily indebted French giant's chief executive, Jean-René Fourtou, had hoped the auction would be a grand spectacle attracting clusters of bidders fighting among themselves for the right to own Universal Studios (makers of this summer's unconvincing blockbuster, The Hulk), the Universal theme-park empire and a couple of high-profile cable- television stations.

Instead, he's had to struggle to attract any attention. The six original bidders believed to be interested a couple of months ago have dwindled to two or three, and none of them looks entirely ideal. M. Fourtou set an initial deadline for bids in June, but was clearly so disappointed by what he saw that he set a second deadline, which passed last Monday without much sign of salivating interest from potential new buyers.

As things stand, the candidate that looked the longest shot a month ago - the parent company of the NBC television network, General Electric - is now being tipped as the bookies' favourite in a lousy field. The deal is seen as a potential "transformation" for NBC, which has enjoyed great success on the back of programmes such as Friends, but has not been able to turn this into a major presence in US media. If GE falls through, then Vivendi may be forced to turn to a consortium led by Edgar Bronfman Jr, the former Universal chief executive who sold the company to Vivendi in the first place and has, arguably, been nothing but trouble since. Talk about an unenviable choice!

Vivendi and M. Fourtou wanted two things out of this auction: a minimum price of $14bn (£9bn), and a cut-and-dried sale, not a merger, which would enable the French management to kiss goodbye to its unhappy three-year foray into the US entertainment business. It now looks almost certain that it will get neither of these things.

Most of the bidders in the early going were turned off by the minimum bid price. Marvin Davis, the Los Angeles oil billionaire who had provided the first stirrings of interest in Vivendi-Universal as early as last autumn, took one look at the $14bn figure and exited. He was followed in short order by Kirk Kerkorian, the octogenarian overlord of MGM, and by Comcast, the cable company, which seriously considered a bid and then chickened out at the last moment.

Viacom, the conglomerate including Paramount Pictures, CBS television and Blockbuster videos, has been largely sitting on the sidelines, expressing an interest primarily in Vivendi-Universal's cable channels, the USA network and the Sci-Fi channel. Also playing hard to get has been John Malone's Liberty Media group, the largest cable provider in the United States, which appears to have taken the view that it would rather sit things out now and reserve the right to be wooed by Vivendi later if the auction process falls apart.

That leaves General Electric. The good news, from Vivendi's point of view, is that the NBC/GE corporate stable is a good match for the Universal empire. NBC is the only major US network unattached to a Hollywood studio, and its news-driven cable-television interests (primarily, MSNBC and CNBC) don't present a clash with Vivendi Universal's movie, sci-fi and drama serial channels.

The bad news, though, is that GE's Jeff Immelt has no intention of paying $14bn either. Instead, he is proposing the creation of a joint venture, 75 per cent owned by GE and 25 per cent by Vivendi, which would last three years in the first instance. GE says it is willing to pay $6bn for its 75 per cent share, plus another $2bn in debt accumulation.

All indications from the various corporate headquarters in Paris, New York and Los Angeles are that negotiations are proceeding at a frenetic pace ahead of a scheduled Vivendi board meeting on Tuesday at which M. Fourtou may at last have to bite the bullet and make a decision.

If he really wants to bale out of Hollywood, and rejects the NBC/GE offer, then the only other thing on the table is a cash buyout proposed by Mr Bronfman, backed by a number of financial interests, including the Wachovia Bank and Merrill Lynch. According to the French financial daily Les Echos, the offer is believed to amount to be around $8bn, which is less than even MGM or Comcast was prepared to pay.

To complicate matters, Mr Bronfman is involved in a bitter legal dispute between Vivendi and its former chief executive Jean-Marie Messier, who is demanding the payment of a $23m severance package promised to him when he left the company last summer. It was Mr Bronfman, along with the then board president, Marc Vienot, who approved the package - remarkably generous at a time when the company was on the brink of bankruptcy - a decision M. Fourtou now calls "scandalous" and "indecent". The case is due to be heard in court in New York, also starting on Tuesday.

As if the picture is not already complicated enough, there are still some wild cards in the pack that may or may not come into play. One is Barry Diller, who briefly ran Vivendi Universal in his spare time last summer and has repeatedly been mentioned as a possible partner, go-between or kingmaker of some sort. Mr Diller has said rather firmly that he sees his future in his successful online business empire, USA Networks, but some still see him as a saviour.

The other question mark hangs over the Universal Music Group, which is not part of the current auction but might conceivably be folded into a deal. Apple made noises about acquiring UMG in April, but the idea was scotched by Apple's shareholders.

Vivendi claims it is in no immediate hurry, having committed itself to a final decision only by the end of September. But with the auction rapidly falling apart, it may be in M. Fourtou's interest to act sooner rather than later and secure a deal with General Electric while it is there for the taking. If the merger goes through, he won't be able to bid adieu to Hollywood as he had hoped, but he might just manage to emerge with his dignity still intact.