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Vivendi gives Diller new life
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June 20, 2000: 5:26 p.m. ET
With Seagram's stake in French hands, options abound for USA Networks
By Staff Writer Tom Johnson
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NEW YORK (CNNfn) - While the media spotlight trailed newly-united Seagram and Vivendi executives from one continent to the next Tuesday, USA Networks Inc. Chairman Barry Diller remained in his office, high above Times Square, undoubtedly enjoying the solitude some believe the $34 billion merger will bring.
Long frustrated in his attempts to find new distribution platforms for his diversified media company, the outspoken Diller likely earned a new lease on life when Seagram, the Canadian entertainment and beverage titan, and French conglomerate Vivendi decided to join forces Tuesday in a $40.6 billion deal, analysts said.
The agreement solves two specific problems for Diller in the eyes of analysts. First, it provides a wide range of options to distribute USA Networks' vast television and online content worldwide, leaving it better positioned to compete against the network heavyweights ranging from NBC to TNT.
Second, and perhaps more importantly, it frees Diller from the chokehold he perceived Seagram Chairman, and one-time close friend, Edgar Bronfman had around his company.
"The one unambiguous winner today is Barry Diller," said Kurt Billick, a media analyst with UBS Warburg, who follows both Seagram and USA Networks. "It doesn't solve all of his problems, but he's better off than he was before."
Escaping from Seagram's grip?
Diller, a natural deal-maker credited with building Fox into a major television network before transforming USA Networks from a home shopping network to a top cable operation, is rarely one to mince words, but he continued his recent practice of not giving press interviews Tuesday.
However, sources close to the company said Diller and other executives were optimistic about the deal and the possible freedom it might provide.
 For all practical purposes, the Vivendi deal is expected to end, or at least diffuse, a tumultuous three-year relationship between USA Networks and Seagram that began when Diller bought Seagram's Universal Studios assets in exchange for a 45 percent stake in his company.
Though once close friends, the relationship between Diller and Bronfman strained in 1998 when Bronfman reportedly used his veto power to block a potential merger between USA Networks and General Electric Corp.'s (GE: Research, Estimates) NBC television network.
Since that time, Diller reportedly has floated a number of ideas to Bronfman about ways to boost the television operation, including spinning it off, but to no avail.
Meanwhile, USA Networks' burgeoning television operation began to suffer from its apparent lack of distribution outlets, most notably when its most popular show, the World Wide Wrestling Federation, recently bolted for Viacom Inc.'s (VIA: Research, Estimates) CBS network.
 Having recently declined its pre-emptive right to maintain a proportionate 45 percent interest in USA Networks, Seagram now controls only about a 42 percent stake in Diller's company. But Bronfman said Tuesday that there would be no change in Vivendi Universal's influence over the organization.
"We hope to be very supportive of [USA Networks'] future, be supportive of the mission that Barry has and be supportive of his initiatives," he said. "[But] our long-term strategy remains the same in that Universal wants to control that asset."
Vivendi Chairman Jean-Marie Messier also would not commit to giving Diller one of the new company's two board seats set aside for non-Bronfman family members from the Seagram camp. (474K WAV 474K AIFF)
Still, analysts said USA Networks is much better off now that Messier, and not Bronfman, has direct control of the voting shares, whose veto power can only be used in deals involving a transaction that would result in a value 10 percent higher than USA Networks' market capitalization.
Instant distribution
Vivendi immediately provides USA Networks with international wired and wireless distribution platforms, particularly in Europe. In addition, Canal Plus, which Vivendi also agreed to purchase Tuesday, will provide USA Networks with access to pay television. CNN International currently operates a joint venture with Canal Plus in Spain.
That still leaves the company without a major distribution platform in the United States, but analysts believe Diller may now have the freedom to fill that hole quickly, possibly by working a deal with one of the four big broadcast networks.
"This may allow Mr. Diller to go off and do some big deals because it's been demonstrated that the management of Vivendi is much more comfortable with a portfolio approach," said Christopher Dixon, a media analyst with PaineWebber.
"Maybe this frees up Diller to do the kind of deal he wants to do in the U.S.," Billick said. "Clearly Diller felt Bronfman was holding him back. Maybe Messier will be more willing to let him deal."
The other possible scenario is an outside party might try to step in and purchase Vivendi's stake in the company.
One analyst suggested cable programmer Liberty Media (LMG.A: Research, Estimates), which already controls a 21 percent stake in the company, could have some interest and simultaneously help solve some of the company's U.S. distribution problems.
But Messier downplayed such a scenario during a press conference in New York Tuesday.
"This relationship is key," he said. "USA Networks is one of the great assets of Seagram. I do think Barry Diller is a great asset. [We're] Interested in how we can offer an even more attractive options to Barry Diller.
Either way, most believe Diller is in a no-lose situation.
"If the deal bombs, he's no worse off than he was before," Billick said. 
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