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MCA decries USA auction
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July 11, 1997: 4:49 p.m. ET
Judge is urged to reject Viacom's plan to auction off the USA cable network
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NEW YORK (CNNfn) - Responding to Viacom Inc.'s proposal to auction off the USA Network in its entirety, MCA Inc.'s Universal Studios Inc. criticized the plan's "illogic and inequity" and recommended that it be rejected.
The filing comes in response to Viacom's June 30th proposal, which the company made after a Delaware Chancery Court ruled on May 15 that Viacom was in breach of the 1981 USA Network partnership agreement with Universal.
To resolve the dispute, Viacom proposed dissolving the partnership and auctioning off the network in its entirety, including the 50-percent stake it doesn't own.
This is "something Viacom obviously could never have required had it honored the agreement," MCA said Friday in a court filing.
"Viacom's proposed remedy...completely disregards the parties' agreement and invites the court to undertake a wholesale rewriting of its exit and dissolution provisions," the company said.
Rather, MCA recommends that its proposal be accepted: to enjoin Viacom from operating the USA joint venture or the competing MTV Networks; and to require Viacom to account for past violations.
Late Friday afternoon, Viacom, as required, is expected to file a similar brief responding to MCA's proposed remedy.
The harshly-worded filings mean the two media giants likely will leave it up to the Delaware court's Vice Chancellor Myron Steele to determine the fate of the network.
Investment bankers and analysts told CNNfn they expect the judge will rule that Viacom must trigger the so-called buy-sell provision of the partnership agreement, which would force Viacom Chairman Sumner Redstone to either sell his stake in the network at a discount or buy MCA's stake at a premium. The price will be determined with the assistance of a financial advisory.
"The bottom line is there is a contract and the judge will opine that the contract remains in force," said Porter Bibb, managing director at Ladenburg Thalmann.
However, not every analyst believes the judge will enforce the original agreement. Judge Steele may very well accept Viacom's proposal to auction the network, said Christopher Dixon, media analyst at PaineWebber.
"There is a 60-percent likelihood of this scenario," Dixon said.
Whatever the ruling, investment bankers and analysts alike said they believe the network likely won't go for anything less than $3 billion, giving Viacom's 50-percent stake a minimum value of $1.5 billion.
David Londoner, analyst at Schroder Co., estimated the value of Viacom's 50-percent stake at $1.5 billion to $1.7 billion. John Tinker, analyst at Montgomery Securities, estimated the stake between $1.6 billion and $1.7 billion.
That price is still below the $1.94 billion that Viacom, in a letter dated June 9, offered for MCA's share of USA Network -- an offer that people familiar with the transaction characterize as an asking price more than a bid.
"It's all a legal strategy," Bibb said. "This is all legal back and filling...It's a 'full-price' as we say in the banking business."
To be sure, PaineWebber's Dixon said he believes the $1.94 billion figure represents a fair value for the assets.
"Based on the fact that (the network has) a highly targeted demographic, that's not an unreasonable price...from an investment point of view, I think the rational approach is to maximize shareholder value," Dixon said.
-- Robert Liu
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