Vivendi Says Liberty Suit Is a Negotiating Ploy

Vivendi Universal’s efforts to sell or merge its U.S. entertainment holdings took an acrimonious turn Sunday with the French media company accusing one of its leading suitors, Liberty Media Corp., of filing a lawsuit to gain negotiating leverage.

In a strongly worded statement, Vivendi Universal said it was “particularly stunned� by Liberty’s lawsuit Friday, which accused Vivendi of hiding its financial problems to lure Liberty into a stock exchange last year.

Vivendi pointed to the sensitive timing of the complaint, filed without notice just one day after its bankers and Liberty Media Chief Executive Robert Bennett “had conducted a business meeting regarding their future collaborations.�

Supporting the speculation of some insiders Friday, Vivendi said Liberty’s motive was to “gain leverage in those ongoing negotiations.� Vivendi said it would vigorously defend the lawsuit, which it said was without merit.

A Liberty spokesman Sunday declined to comment on the lawsuit or Vivendi’s response.

The legal brawl comes at a sensitive time for Vivendi Chief Executive Jean-Rene Fourtou, who visited the United States last week to reassure Universal executives and seek investors for high-yield bonds to help refinance the company’s hefty debts. Addressing that matter Sunday, Vivendi said, “The lawsuit would not distract the company from a quick and orderly resolution of its financial issues.�

Vivendi’s statement is the conglomerate’s clearest signal that it has been in serious discussions with Liberty, controlled by cable magnate John Malone, about what sources say is a possible sale or merger of the Universal movie studio, theme parks and television holdings.

Liberty, which has ambitions to become a full-fledged media company, has expressed interest in combining its Starz Encore cable group with Universal’s USA and Sci Fi channels as well as the Universal movie studio and theme parks. Such combinations can give companies more clout in negotiating with cable operators.

Liberty is among several parties Vivendi is talking to about a possible sale, spinoff or merger of the Universal businesses.

It was unclear what effect the lawsuit will have on the Liberty negotiations. One source familiar with the discussions said the legal dispute could weaken Liberty’s standing with Vivendi but probably would not derail the talks. A fallout with Liberty could strengthen the hand of the other leading suitor, an investment group headed by oil tycoon Marvin Davis, who has put an offer on the table for all of the Universal assets. Viacom Inc. has expressed interest but only in the Universal cable properties, sources say.

The Liberty lawsuit springs from a stock exchange the two companies agreed to last year as part of the $11-billion deal to create Vivendi Universal Entertainment, a joint venture combining Universal’s movie, television and theme park holdings with USA Networks Inc.’s cable and film businesses. Under the deal, Liberty exchanged its stock in USA for a 3.6% equity stake in Vivendi Universal, making it one of the company’s largest shareholders.

Since then, Liberty has seen the price of those shares plummet as Vivendi’s market value has eroded.

With a sizable cash pile, Englewood, Colo.-based Liberty is considering several potential deals. In addition to a possible acquisition of the Universal assets, excluding Universal Music Group and Vivendi’s games division, Liberty is weighing a buyout of Comcast Corp.’s 58% interest in the QVC shopping channel.