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Bronfman, Dolan Set Eyes on VUE

The field of potential bidders for Vivendi Universal S.A.'s U.S. entertainment assets got a little bigger last week, with former Seagram Co. Ltd. chairman and VU vice chairman Edgar Bronfman entering the fray — possibly with Cablevision Systems Corp. as a backer.

Vivendi's U.S. holdings — collectively called Vivendi Universal Entertainment — have been on the block since November, when Texas oil billionaire Marvin Davis made a $20 billion bid for them.

Since then, other potential suitors have nosed around VUE, including Viacom Inc., General Electric Co.'s NBC unit, Metro-Goldwyn Mayer Inc. and Liberty Media Corp. Liberty was expected to make a joint bid with former VUE co-CEO Barry Diller.

Bronfman's bench

Bronfman, who sold Seagram to Vivendi in 2000, is assembling a team of investors, according to published reports. The group would comprise Cablevision and several private-equity firms, including Blackstone Group, Kohlberg Kravis Roberts and Providence Equity.

It is expected that VUE would fetch at least $15 billion — not including $5 billion in assumed debt — in an auction.

Sources confirmed reports that Cablevision and CEO James Dolan are interested in being involved in the deal. According to reports, Cablevision would contribute its Rainbow Media Holdings programming assets (which include WE: Women's Entertainment, AMC and the Independent Film Channel) to VUE, in return for a 25% to 33% stake of the new entity.

Last week, at the Banc of America Securities LLC media conference, Cablevision vice chairman William Bell all but left the door open to a Vivendi deal.

"In this business, everybody talks to everybody," Bell said. "Vivendi has very attractive assets and Rainbow has very attractive assets. Perhaps we can fit them together in some fashion. We will have to see where it leads."

Vivendi also confirmed that Bronfman was gearing up for a bid, issuing a press release that it has suspended Bronfman and his father, Edgar Bronfman Sr., from any participation in committees and board meetings regarding the disposal of assets.

In the press release, Vivendi said the younger Bronfman has informed the company of his intention to lead a consortium of potential purchasers of the VUE assets.

If his bid were successful, Bronfman would head up the combined VUE-Rainbow entity. And though he claimed in published reports that he significantly improved shareholder value when he ran the entertainment assets, his management record is spotty at best.

Bronfman was widely criticized in 1995 for selling his family's stake in chemical giant DuPont Co. to buy Universal Studios parent MCA Inc. In 1997, Bronfman sold his cable television networks to Diller's Home Shopping Network for $1.2 billion and a 45% stake in the new entity it created, USA Networks Inc.

In 2000, Vivendi purchased Seagram and one year later purchased USA Networks' interest in the cable channels.

The Vivendi deal, at the time thought to be a good move for Seagram, quickly turned into a disaster. Bronfman largely took Vivendi stock as part of the Seagram deal — shares which lost about 80% of their value in the wake of an acquisition spree by former Vivendi chairman Jean-Marie Messier.

Messier, who amassed a huge debt load in the process, was ousted from Vivendi last year, replaced by former drug company executive Jean-Rene Fourtou.

Since assuming the chairman's role in July, Fourtou has been paying down Vivendi debt by selling assets.

But it was not until Vivendi's annual shareholder's meeting in Paris last month that Fourtou admitted the U.S. assets were for sale. At that April 29 meeting, Fourtou also said for the first time that Vivendi would be willing to sell VUE piecemeal, rather than in one package.

That would be most attractive to the other suitors, who appear to be mainly interested in the cable networks.

Mel: we're interested

In an interview last week, Viacom president and COO Mel Karmazin said that Vivendi's cable assets would be attractive.

"If Vivendi were interested in selling just their cable assets, we would certainly be interested in looking at it," Karmazin said. "I can't tell you we would be the buyer, because of the price.

"The question on USA would be that we like niche cable networks a lot. A general-entertainment network is something that we have not really gravitated toward. But again, it's a great brand and they do great things.

"The question would be, what is the growth rate of USA Network going forward and what price would you pay? Sci Fi probably fits better conceptually. It's a targeted niche, and has an awful lot of growth ahead of it."

In a research note, UBS Warburg cable debt and equity analyst Aryeh Bourkoff wrote that although a Vivendi deal would be a departure from Cablevision's recent strategy to divest non-core assets, it could be good for the company at the right price and structure.

Such a combination effectively allows Cablevision "to divest non-core non-cable assets into an entity that could hold greater value overall under outside control," he added.

Fold in DBS, too

Cablevision sold its Bravo cable channel to NBC last year for about $1.25 billion and shuttered its money-losing retail electronics venture — The Wiz — in March. In December, Cablevision sold its interest in Northcoast Communications Inc. to Verizon Communications Inc. for $750 million.

Bourkoff wrote that he would view the deal even more favorably if Cablevision could find a way to contribute its direct-broadcast satellite venture to the new entity.

The DBS venture has been a sticking point with investors unhappy with Cablevision's insistence on investing large amounts of capital to what they believe is a losing proposition.

Most analysts believe that a Cablevision DBS venture is too little, too late and would be crushed by competition from EchoStar Communications Corp. and DirecTV Inc. Media giant News Corp. is in the process of acquiring DirecTV parent Hughes Electronics Corp., which would make it an even more formidable force in the DBS market.

Cablevision has earmarked $80 million for the DBS venture this year. Earlier this month, it received permission from the Federal Communications Commission to delay the launch of a satellite for the service until August. In the past Cablevision has said the DBS venture could cost anywhere between $500 million and $1 billion.