Vivendi Universal and Barry Diller's IAC make $3.4 billion deal

Daily Variety reported on Wednesday that CEO Barry Diller's IAC/InterActiveCorp has agreed to unload its stake in Vivendi Universal Entertainment in a $3.4 billion deal that will hand NBC Universal full control of its U assets. VUE was created in 2002 through a joint venture of Universal Studios, then owned by Vivendi, and the entertainment assets owned by Diller's company--itself a complicated transaction. Diller served for about a year as head of Universal Studios. He left some months after a cash-strapped Vivendi put U on the block and the onetime media mogul focused on his growing online company. Through his stake in VUE, Diller tagged along when General Electric bought Universal from Vivendi in 2004 and merged it with NBC--prompting speculation as to how active he'd be and how quickly GE would be able to cut him loose. However, he remained a mostly passive investor. NBC executives stressed then, and now, that Diller's stake has never presented a problem in terms of control. The complex three-way transaction, which settles a legal battle over taxes IAC claimed it was owed by Vivendi Universal, had all parties beaming. Wall Street applauded Diller's savvy deal making, bidding IAC stock up 4.75% Wednesday to $25.81 a share. Vivendi could have been on the hook for $620 million in potential tax liabilities if it lost a suit with IAC in Delaware court. With the deal, IAC and Vivendi have agreed to dismiss litigation. The deal also releases VU from an obligation to pay GE up to $520 million in the case of a loss on any sale of U theme parks before 2008. Vivendi and GE also agreed to extend by one year the respective dates by which they must decide whether to remain intertwined. VU now has until January 2007 to liquidate its stake in NBC U; GE now has until May 2010 to decide whether to boot VU. Vivendi said its share of the payment to IAC amounted to $235 million--versus a previous commitment to pay about $30 million a year over 17 years. Conglom recorded a $244 million capital gain. In addition to the $235 million, IAC is getting $865 million from the sale of U.S. Treasury bonds that had secured its interests in VUE. IAC noted the deal will result in an after-tax gain of $330 million--proceeds "that, by any measure, exceed the company's publicly stated valuation of the VUE securities." The deal also calls for IAC to sell its 5.4% in VUE to NBC for a mixture of cash of stock. IAC said it will net $1 billion in cash, 56.6 million of its own shares, valued at $1.4 billion, and $100 million worth of advertising across NBC's TV networks for three years. The move will allow Diller to focus on his stable of Internet properties as well the possible spin-off of Expedia and his other online travel sites. IAC also is in the process of acquiring popular Internet site Ask Jeeves.