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Vivendi sets its sights on USA

In recent presentations to investors, Barry Diller has been like a throwback to 1998, waxing on and on about the promise of USA Networks Inc.'s Internet assets and saying barely anything about his cable entertainment networks, the things that generate profits.

The reason became clear last week as 43%-owner Vivendi Universal acknowledged that it is in talks to buy USA Networks' cable entertainment and film operations and to leave USA Networks Chairman Barry Diller's Internet travel, Ticketmaster and Home Shopping Network.

The big question is what Diller's role would be. Diller is pushing for a continuing role in guiding the cable networks and even Vivendi's Universal Studios film unit. But he isn't planning to completely shed his role at the Internet operation, so it's unclear how he would bridge the two companies and two sets of shareholders.

"Barry is so emotionally tied up in Hollywood, I can't imagine he would give it up to run an Internet travel agency," said a friend. USA Networks is acquiring Microsoft's travel agency Expedia, although that deal will likely be delayed by the Vivendi negotiations.

Vivendi also said last week it would inject $1.5 billion into EchoStar Communications, supporting the DBS service's planned takeover of Hughes Electronics and DirecTV. Vivendi is funding that by selling a third of its 25% stake in British DBS service BSkyB.

Vivendi Chairman Jean Marie Messier wants more control of USA and wants the cash flow of the TV assets. For them, he is proposing to give the company his 43% stake (worth about $8.2 billion) and about $2 billion in cash.

Vivendi is currently locked up in a standstill agreement with Diller from buying stock in the open market to secure a majority interest. The prospect of a deal increased dramatically when Diller agreed to sell USA's broadcast-TV stations to Univision. As a French company, Vivendi could not buy U.S. broadcast licenses.

Salomon Smith Barney analyst Niraj Gupta estimated that USA's networks and production units are worth $10 billion to $12 billion and the rest of the company around $8 billion.