USA/Vivendi Throws A Wrench into Expedia Deal

Online travel business Expedia Inc. was scrambling today, trying to find out how its planned acquisition by Barry Diller’s USA Networks Inc. might be affected by the news that Vivendi Universal is in talks to acquire the entertainment assets of USA.

Bellevue, Wash.-based Expedia issued a statement that said in essence the Dec. 17 shareholder meeting that includes an approval vote on the USA deal is still on, “to the extent a USA/Vivendi transaction has not been announced and is considered not probable.”

But it also said that: “To the extent such a transaction is announced by the parties or is considered probable, this may impact the timing of the presentation to Expedia shareholders for approval of the pending … merger transaction.”

USA Networks struck the complex, mega-million dollar deal with Expedia’s largest shareholder, Microsoft Corp., last July. USA Networks was to acquire a controlling interest in the travel site as part of the launch of a Travel Group that was to include a new cable TV channel.

Today reports were surfacing that Vivendi , seeking a U.S. distribution outlet for its television and film assets, is in talks to buy USA Networks’ entertainment assets, said to be valued at $10 billion to $12 billion.

“We confirm that discussions have been ongoing for several months,” Vivendi boss Jean-Marie Messier told Reuters. “These talks at their current stage may or may not lead to a transaction.”

That news certainly leaves Expedia — and Microsoft — hanging. Prior to its IPO in 1999, Expedia was a wholly owned subsidiary of Microsoft.

The original deal calls for USA Networks to acquire all of Microsoft’s 33.7 million shares and warrants in Expedia as it buys up to 37.5 million shares, or approximately 75 percent of the company. The value of the Expedia deal was estimated at $1.5 billion, or roughly $40 a share.

Expedia stock closed Tuesday at $40.06. In early trading this morning it sank to $38.33, then recovered and at mid-morning was down only 1 cent to $40.05.

Travel has been one of the success stories in Internet commerce, despite a brief setback caused by the events of Sept. 11. Expedia’s stock dropped into the $20 range for a while after the attack.
Some analysts had expressed concern then that the sale might be in trouble. Expedia posted a first quarter (ending Sept. 30) net loss of $4.8 million, or 9 cents per share, compared with a year-ago loss of $30.8 million, or 69 cents per share. On a pro formal basis, earnings were $15.1 million or 24 cents per diluted share.

“A public statement will be made regarding the status and timing of the Expedia/USA transaction as soon possible,” Expedia said.

Pundits were speculating on a variety of possible ways for a Vivendi-USA deal to be structured, and one had Diller selling most cable assets but retaining the e-commerce operations at Home Shopping Network and Ticketmaster and following through with the Expedia acquisition. In any case, Vivendi certainly has some leverage, owning a 43 percent stake in USA Networks. Chairman and CEO Diller controls 74 percent of USA Networks’ voting power, however.

“There are so many moving parts to this deal that any number of scenarios are on the table,” one source was quoted as saying. Another analyst said that the concept of USA Networks becoming an e-commerce company is not all bad. “USA would be a pure play, profitable interactive company if such a deal (involving the sale of cable assets) went through,” the analyst wrote.

Vivendi bought Universal’s film studios, theme parks and record labels from Seagram about a year ago. A television operation is the one missing asset in the Vivendi entertainment chain.

New York City-based USA Networks includes the USA Network, the Sci Fi Channel, TRIO, NWI, Crime, Studios USA (TV programming) and USA Films; and USA Interactive’s Home Shopping Network, HSN International, HSN Interactive, Ticketmaster, Hotel Reservations Network, Electronic Commerce Solutions, Styleclick and Precision Response Corp.

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