French conglomerate Vivendi Universal has approved a $10-billion purchase of the entertainment assets of Barry Diller's USA Networks in a complex stock deal that puts the veteran entertainment mogul at the helm of one of Hollywood's hottest studios, a source close to the negotiations said Saturday.
Under the deal, which USA's board is expected to approve today, Diller would head a new Vivendi-controlled company that would combine its Universal Studios theme parks and movie studio with his cable networks, television production unit and film company.
Vivendi, the world's second-largest media company, is betting that Diller can expand its presence in the U.S. to compete with the likes of AOL Time Warner, Walt Disney Co. and Viacom. The brilliant but combustible operator is credited with being an architect of the modern media world.
Tapping Diller is seen as a coup for ambitious Vivendi Chairman Jean-Marie Messier, because Diller has long said he was not interested in working for someone else.
"For Jean-Marie Messier to have gotten Barry to come inside the tent and offer his services, whatever those are going to be, is a real home run," said Jeffrey Katzenberg, a partner in DreamWorks SKG who worked for Diller for several years at Paramount Pictures.
But Diller's hard-driving style is expected to roil the entertainment industry as well as the executive suites at Universal Studios. The consummate industry insider who has powered two studios and created a broadcast network will be put in charge of the movie studio that produced such lucrative film franchises as "Jurassic Park" and "The Mummy." The new company will be combined with Diller's USA Network, Sci-Fi Channel, the "Law & Order" television series and a film company that produced last year's Oscar-winning "Traffic."
The deal also would reunite Universal with assets that former owner Seagram sold to Diller in 1998 for $4.1 billion. Universal, which has owned 43% of USA Networks, now would have controlling interest in USA's entertainment business.
However, USA is not selling its Home Shopping Network and Internet companies, which include Ticketmaster. And Vivendi plans to keep Universal Music Group, the world's largest music company, and its publishing operations separate from the Diller-controlled company.
According to the source, the proposed deal involves mostly stock, including some of Vivendi's share in USA, though precise terms were not known. The deal is subject to approval by USA Networks shareholders. It's unclear whether the purchase must also be reviewed by federal regulators.
Neither Vivendi nor USA officials were available to comment.
Vivendi's board approved the deal Friday, the source said, the same day it announced its plan to buy an 11% share of satellite television service EchoStar Communications. That deal would allow Vivendi to deliver its TV shows and movies over EchoStar's satellite service, which reaches 6.5 million homes across the country.
The acquisitions are part of Messier's aggressive strategy to take on U.S. entertainment giants on their own turf and strengthen the company's presence in the U.S. Earlier this year, Vivendi acquired independent book publisher Houghton Mifflin for $1.7 billion and music downloading Web site MP3.com Inc. for $372 million.
But Messier, who recently moved from Paris to New York, has had trouble convincing Wall Street that Vivendi is a bona fide rival to AOL Time Warner Inc. or any other media giant. One major gap for Vivendi has been its lack of distribution outlets, such as cable or broadcast channels in the U.S.
The challenge for Diller will be to forge a cohesive core company that he can sell to Wall Street. He will need the financial community's support to fund Universal's further expansion.
Playing on a par with News Corp.'s Rupert Murdoch and Viacom's Sumner Redstone is the one thing Diller, 59, has tried but failed to do. His company, USA Networks, is a small if innovative firm in an industry dominated by giants.
"With Barry there, Universal is the place of the moment," said Graydon Carter, editor of Vanity Fair and a Diller intimate.
Carter called the Universal arrangement a "step deal," adding that he understands Vivendi will buy several more assets in the coming months as the French company shifts its emphasis from its core water and sewage business to movies and television. Vivendi also operates Europe's biggest pay-TV service, Canal Plus, with more than 15 million subscribers.
Network Seen as Crucial Piece
In today's consolidated industry, it is crucial for media companies to own stakes in all aspects of media and entertainment, and Universal has been short some key pieces, specifically a broadcast network.