Vivendi to Enter Talks Over Fate of U.S. Units

Amid building uncertainty over the fate of Vivendi Universal’s U.S. entertainment units, the company’s French brass arrived in New York this week for key meetings with its American management team.

In a sign of growing tensions, Barry Diller, the media giant’s U.S. entertainment division co-chairman, recently lost control of its music group, Universal sources said.

The group had been put under Diller’s wing in a temporary reorganization, but he showed little interest in the division, the sources said. Universal Music Group chief Doug Morris now reports directly to Vivendi Chief Executive Jean-Rene Fourtou.

Representatives for Vivendi Universal and Diller declined to comment.

During a lengthy session Tuesday, Fourtou and Morris discussed the future of the music operation, which is suffering through an industrywide sales slump caused at least in part by online piracy.

Later this week, Fourtou’s top executives -- Chief Operating Officer Jean-Bernard Levy and Chief Financial Officer Jacques Espinasse -- are set to meet in Los Angeles with Universal Studios President Ron Meyer and Universal Pictures Chairwoman Stacey Snider. They are expected to discuss details of a plan to slash costs at the studio, sources said.

The spending reductions are meant to help Vivendi trim debt as it prepares to sell or offer stock in its U.S. assets.

Diller, who has overseen the cuts, is expected to meet with Fourtou this week. The two are likely to continue testy negotiations about unraveling the complex partnership created last year when Vivendi paid $11 billion to combine its film and theme park properties with Diller’s USA Networks’ entertainment holdings. The deal left Diller’s USA Interactive with a 5.4% ownership in the joint venture, and Diller with a 1.5% position.

Many observers expect Diller to retain a stake in the entertainment group, which he now manages under an unusual, informal executive arrangement.

Untangling the partnership is a key step for Fourtou as he seeks to restructure Vivendi, which has been shedding assets to lower debts that nearly forced it into Bankruptcy Court last summer.

But the talks with Diller have been bogged down by disagreements over, among other things, how much money Vivendi would have to pay USA Interactive to cover a tax liability due from any asset sale.

Likely to increase tensions is Fourtou’s meeting next week with Diller’s longtime business nemesis, Marvin Davis.

An investment group headed by Davis in November offered to buy the businesses for $20 billion, or pay $13 billion for a controlling stake. Vivendi rebuffed the initial offer as too low, sources said.

Other potential bidders for all or part of the group include John Malone’s Liberty Media Corp., which may join Diller in a bid. General Electric Co.’s NBC and Metro-Goldwyn-Mayer Inc. also have expressed interest in some Universal assets.