Vivendi, Diller Near Agreement

Vivendi Universal and USA Networks Inc. have agreed on the basic terms of a deal that puts media mogul Barry Diller in charge of Universal Studios’ film, television and theme park businesses, according to sources close to the situation.

Under the complicated agreement, French conglomerate Vivendi would buy the film and TV assets of Diller’s USA Networks for an estimated $12 billion. The assets would be combined with Universal’s entertainment operations into a new company controlled by Vivendi and headed by Diller as chief executive.

Diller would oversee one of Hollywood’s hottest studios, with recent hits such as “The Mummy Returns,� plus Universal’s international television and theme park businesses. The USA assets include the USA cable network, the Sci-Fi channel, and film and television production units.

Despite his new studio role, Diller would devote most of his energy to continuing to build USA’s electronic retailing assets. He would retain control of USA’s Internet assets, along with Home Shopping Network and Ticketmaster. The company would probably be renamed USA Interactive, according to one source.

USA could have an equity stake in the new Universal venture.

The deal is expected to be announced as early as Monday.

News that Diller would return to run a studio stunned Hollywood and Wall Street, because for a decade since leaving News Corp.-owned Fox, he’s vowed never to work for another boss. Diller also has been a severe critic of the economic model of the Hollywood movie and television production business.

Diller would report to Vivendi Chairman Jean-Marie Messier, who has transformed the French water-treatment titan into the world’s second-largest entertainment conglomerate through the acquisitions last year of Universal parent Seagram Co. and French pay-TV giant Canal Plus.

Diller, 60, has been a favorite on Wall Street since building the Fox television network for News Corp. He would give Messier credibility on Wall Street and brings a depth of media experience that Messier lacks, having also headed 20th Century Fox Film Corp. and Paramount Pictures Corp.

Since 1996 Diller has built USA Networks into a company worth $20 billion, starting with the acquisition of a rundown Home Shopping Network.

The deal is motivated by a partnership between USA and Vivendi that no longer serves their interests. In 1998, Seagram, Universal Studios’ parent, sold most of its TV assets to USA Networks for $4 billion in exchange for a 43% stake.

Messier has had trouble convincing Wall Street that Vivendi is a bona fide rival to AOL Time Warner Inc. or any other media giant. One huge gap for Vivendi has been its lack of distribution outlets such as cable or broadcast channels in the U.S. Analysts say without such distribution, Universal has had difficulty squeezing value out of its movie franchises.

When Diller first bought the television assets from Seagram, he envisioned using them as a platform for acquiring the NBC network and controlling a major media company. But Seagram used its special veto power to block the NBC transaction.

Though some Universal executives speculated Thursday that Diller was coming to the studio to make another run at buying NBC, analysts scoffed at the notion.

NBC, which is a division of General Electric Co., is considered a buyer of media assets rather than a seller. GE recently agreed to pay $3 billion for Telemundo, the Spanish language broadcaster.

Diller would have plenty of cash for buying Internet assets after the Vivendi deal.

Vivendi would pay USA $12 billion for its entertainment assets, sources said. USA would use some of those proceeds to buy back Vivendi’s 43% stake, which has a market value of about $8.6 billion. That would leave USA with roughly $3 billion.

Diller has been eager to consolidate the Internet operations while values are depressed and before high-speed Internet access becomes more popular.

Diller would be selling his cable assets at a time when their value is at an all-time high. Walt Disney Co. paid a record price of $2.9 billion this fall for Fox Family Worldwide and its Fox Family channel.

Investors drove down Vivendi’s stock price Thursday, viewing the value of the deal as steep. Vivendi’s American depositary receipts closed at $48.53 a share, plummeting $3.07 on the New York Stock Exchange. USA’s shares dropped 71 cents to $23.83 on Nasdaq.

In addition to Wall Street, nerves were on edge at Universal because of the prospect of Diller’s becoming the new boss. Under the new management structure, Universal Studios President Ron Meyer would report to Diller rather than Pierre Lescure, the head of Canal Plus.

Diller is known as a demanding, hands-on boss who would not hesitate to change a movie trailer or TV spot at the last minute, a reputation that has raised anxieties among studio executives. In contrast, Meyer’s style is relaxed and he tends to empower his division heads.

Universal Pictures chief Stacey Snider and her team have overseen a string of box-office hits over the last two years, including “Erin Brockovich,� “The Fast and the Furious� and the “American Pie� and “Mummy� series.

Sources say Messier has become disenchanted with Lescure, who has overseen Universal since last December. Though he is credited with building Canal Plus into Europe’s largest pay-television company, outside of the company’s home base in France Canal Plus is still unprofitable.

Diller would not supervise Canal Plus, Vivendi’s Universal Music Group or its publishing unit.

Liberty Media Corp., which owns a 21% stake in USA, could end up with a stake in both the new venture as well USA Interactive, sources say.

It is unclear what other deals Liberty’s controlling shareholder, John Malone, has orchestrated as part of the USA-Vivendi negotiations.

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Times staff writer Richard Verrier contributed to this report.