Barry Diller's Internet juggernaut IAC/InterActiveCorp took its foot out of the Hollywood door June 8, unveiling a $3.4 billion cash and stock deal to sell a minority stake in a part of NBC Universal
NEW YORK (The Hollywood Reporter) -- Barry Diller's Internet juggernaut IAC/InterActiveCorp took its foot out of the Hollywood door June 8, unveiling a $3.4 billion cash and stock deal to sell a minority stake in a part of NBC Universal back to the company, which is 80%-controlled by General Electric and 20% by Vivendi Universal Entertainment.
As part of the transaction, which observers said marked another step in Diller's focusing on the Internet space and distancing himself from the entertainment industry, IAC and Vivendi agreed to end a long-running legal fight over the size of tax-related payments that Vivendi had to make under the previous ownership structure.
The agreement also does away with some rights that allowed Diller to block certain moves and dispositions.
The deal came earlier than Wall Street observers had expected, but Diller said in a conference call that IAC's plan to split into two this summer provided a "window of opportunity" to reach a transaction that would further simplify its holdings.
The relationship between Vivendi and GE also is affected by the resolution of the IAC stake.
Vivendi said June 8 that both firms will retain the same stakes in NBC Uni and that they have agreed to push back, by one year each, their options to end their joint ownership, giving Vivendi at least one extra year to stay involved in Hollywood. When the two firms created NBC Uni, Vivendi received an option to start selling its stake in 2006, and GE got an option to call for that stake in 2009.
Vivendi said the transaction also removes a commitment to pay up to $520 million to GE to make up for potential losses if NBC Uni sells any theme parks before 2008.
"It's a very valuable asset," Vivendi CFO Jacques Espinasse said of NBC Uni at a Deutsche Bank media investor conference here. He added that Vivendi will get at least $400 million in dividend payments from the company this year, which he said is a better yield than that of other media players.
In the deal unveiled June 8, IAC agreed to sell its 5.44% common interest as well as preferred interests in Vivendi Universal Entertainment for 56.6 million in IAC common and Class B common shares owned by Vivendi, which were worth $1.4 billion at the June 7 closing price, as well as cash, including $865 million from the sale of Vivendi bonds that secured IAC's preferred interests. IAC also gets about $100 million in advertising across the NBC Uni networks over the next three years.
Vivendi said it effectively paid only $235 million in cash in the deal, and it will record a capital gain of $244 million.
IAC, on the other hand, will record an after-tax gain of about $330 million and get about $1 billion in cash after taxes. Last year, its VUE holdings benefited the bottom line to the tune of $50 million-$60 million, IAC said.
Espinasse said that the litigation over the tax-related payments had meant "there was uncertainty" that posed risk for Vivendi. The firm said it will no longer have an obligation to make annual payments of about $30 million over a 17-year period.
Wall Street observers said Diller and IAC did not make extra money in the deal with NBC Uni. "The transaction results in after-tax proceeds to IAC that, by any measure, exceed the company's publicly stated valuation of the VUE securities," IAC said in a statement.
After taxes, the value of the agreement amounts to about $2.5 billion, ahead of the $2.2 billion the firm had floated in the past, according to IAC.
But in a conference call later, Diller said IAC came only "very close" to the original value.
VUE was created in 2002 by Vivendi and IAC as part of IAC's sale of its entertainment assets to the then-fast-growing Vivendi entertainment empire. Last year, VUE became part of NBC Uni.
Diller said June 8 that the final three years of the VUE partnership were "not without drama." He also described the relationship with Vivendi as a "roller-coaster ride."
The former Hollywood mogul also was asked about his relationship with John Malone and Malone's Liberty Media, which owns an economic stake of about 20% in IAC. Malone recently suggested IAC could do with higher leverage to avoid paying taxes. Despite slight differences in tax strategies, Diller said, "I think we're in alignment." He added that Malone also agreed that the NBC Uni agreement was a good idea.