Vivendi Universal has confirmed this morning that it is taking full control of the entertainment assets of Barry Diller's USA Networks (USA) in a deal valued at approximately $10.3bn and unanimously approved by both boards.
Vivendi Universal will have a 93% control of an entity to be called Vivendi Universal Entertainment (VUE) that brings together Universal Studios Group and the entertainment assets of USA.
Diller, as expected, will run VUE as its chairman and CEO - in addition to remaining as chief of the surviving USA entity, which will be called USA Interactive. Diller will also have a 1.5% stake in VUE, which will have its own board convened separately from that of the Vivendi Universal parent company.
The top management of Universal Studios Group - including President and Chief Operating Officer Ron Meyer, Universal Pictures Chairman Stacey Snider and Chairman and CEO of Universal Studios Recreation Group Tom Williams - will all remain in place.
Former Channel 4 chief executive Michael Jackson, as chairman and CEO of USA Entertainment Group, will aid Mr. Diller in the integration and consolidation of Vivendi Universal Entertainment. Pierre Lescure will continue in his role as Co-Chief Operating Officer of Vivendi Universal. He will focus on U.S. / Europe integration of synergies across those two geographic areas.
The transaction will be financed by the exchange of USA and Vivendi Universal securities in addition to a cash injection of $1.6bn - the same amount that the company received from USA in the original transaction.
John Malone's Liberty Media - a 21% shareholder in USA Networks - ends up with a 3.6% stake in Vivendi Universal as part of a deal that also involves Liberty selling its 27% stake in the European cable TV company, Multithematiques to Vivendi Universal.
Commenting on today's announcement, Jean-Marie Messier, Chairman and CEO of Vivendi Universal said: 'Our strategy is clearly coming together. Combining within the same operational entity, VUE, USG and the entertainment assets of USA creates a new U.S. major, which will benefit from the full integration of TV and movies activities with production and distribution.
'Along with our strategic partnership with EchoStar, this transaction fully addresses Vivendi Universal's needs in terms of integration and distribution on the U.S. market.
'I also welcome Liberty Media Communication as a Vivendi Universal shareholder and a key partner as we expand our prospects in programming alliances in Europe.'
On top of revenues which are expected to exceed Euros 32bn in 2002, EBITDA from media activities is expected to increase by more than Euros600m as a result of the deal. Net income will be increased by approximately $200m and free cash flow by more than $350m.
Messier also said today that he will also create a worldwide entertainment committee that will gather every month all Vivendi Universal entertainment CEOs to ensure coherence of Vivendi Universal entertainment strategy and success of integration. The committee will coordinate the actions of all the CEOs of the entertainment assets, extract all possible synergies and seek out and organise strategic partnerships.
Messier will be seconded in this role by Pierre Lescure. The entertainment committee will cover film, TV, music, games and education, with a charter to extract all possible synergies among and between business units and to organize other strategic partnerships.
As a result of this transaction, the companies believe there will be improved content offerings on USA cable networks, which will drive ratings and per-subscriber fees. Also, this is the opportunity to fully 'monetise' Universal franchise content, such as Dr. Seuss' How The Grinch Stole Christmas and Erin Brockovich, through improved TV distribution.
While immediate revenue synergies are estimated to be approximately about $60m, these opportunities are expected to represent more than $100m of additional EBITDA (earnings before interest, taxes, depreciation and amortisation) - approximately $40m from cost savings, in addition to the new revenue generation. Other cost saving opportunities may arise through information technology and real estate integration, said Vivendi Universal, which saw its shares immediately rise by 4% to Euros55.9 upon news of the deal.