Cablevision and MGM solidified their bids for Vivendi Universal Entertainment yesterday.
The two media companies parted ways in a deal that gives MGM extra cash for its bid for VUE, while Cablevision gained full control of three of its cable networks that it has pledged as a part of bid for Vivendi’s entertainment assets.
The companies said that Cablevision would purchase MGM’s 20 percent stakes in the cable networks WE: Women’s Entertainment, American Movie Classics and the Independent Film Channel for $500 million. All three are part of Cablevision’s Rainbow Media Unit, which will now own the three channels outright.
Rainbow will pay MGM $250 million at the close of the transaction, which is expected at the end of the third quarter. In five months, Rainbow will fork over the other $250 million, either in cash or in Cablevision stock.
MGM purchased the stakes in April of 2001 for $825 million, but this also included a 20 percent stake in Bravo, which was sold earlier this year to NBC for $250 million. In total, MGM lost $75 million on its Rainbow investment.
In a research note yesterday Merrill Lynch analyst Jessica Reif Cohen said that Cablevision “is getting an extraordinary good deal,” and pegged her valuation of the stake at $534 million.
“We are turning an asset for which the financial community gave us little credit into over $2 per share in cash,” said Alex Yemenidjian, chairman and CEO of MGM, in a statement.
“Upon completion of the transaction, our balance sheet will be 100 percent debt free, which will give us more flexibility in pursuing other value creation opportunities for our shareholders,” he said.
MGM has put in an offer for VUE – which includes a movie studio, theme parks and television properties – that is said to be in the $11 billion range and offers Vivendi the most up-front cash of any of the bidding parties.
Its take from the Rainbow deal could add to its bid, according to one source. “It clearly puts some cash in [MGM’s] pocket, which it could use in the bid,” said the source.
Meanwhile, Cablevision has pledged its cable channels to a private equity group that is headed by Edgar Bronfman Jr. and is bidding for VUE.
Cablevision recently announced that it had uncovered accounting irregularities at its AMC division and fired 14 employees, including the president, as a result. But the accounting problems have not affected Cablevision’s inclusion on the Bronfman bid.
Vivendi’s board of directors is scheduled to meet today in Paris to whittle down the number of bidders. Five parties have expressed interest in acquiring VUE.
In addition to MGM and Bronfman, these include General Electric, John Malone’s Liberty Media and another private equity group headed by Marvin Davis. A sixth, Viacom, has said it is interested solely in Vivendi’s cable channels – USA Network and the Sci-Fi Channel.
Streamlining
MGM is selling its 20 percent stake in a trio of cable channels to Cablevision’s Rainbow Media, which already owns the other 80 percent.
Rainbow’s assets:
* American Movie Classics, the Independent Film Channel and WE: Women’s Entertainment cable channels.
* 24-hour music channel Fuse
* A 60 percent stake in Madison Square Garden