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Vivendi to Sell Unit to News Corp.

Media: Deal will cut debt for Messier. Murdoch to merge Stream with Telepiu as Italy's only pay-TV operator, with 2.35 million subscribers.

June 10, 2002|From Bloomberg News

PARIS — Rupert Murdoch's News Corp. agreed to buy an Italian television business from Vivendi Universal for $700 million in cash, plus debt, to become Italy's only pay-TV operator.

The price includes $700 million of assumed debt and $700 million in cash, said Jean-Louis Erneux, a spokesman for Canal Plus, Vivendi's pay-television unit. Vivendi expects the transaction will cut its debt by about $1 billion.

Vivendi Chief Executive Jean-Marie Messier is under pressure to sell assets to cut $30 billion of debt after he spent $100 billion turning a water utility into the world's second-biggest media company.

Murdoch will merge Telepiu with his Stream unit, almost tripling News Corp.'s Italian subscribers to 2.35 million.

"Everything that cuts Vivendi's debt and increases its cash flow is good news," said Jacques Falzon, an analyst at KBC Securities in Paris, before the announcement. He rates Vivendi shares "buy."

Telepiu, which has 1.5 million subscribers, has been losing money since it was created in 1997 by Canal Plus, Europe's biggest pay-TV company. The unit accounted for most of Canal Plus' $350-million loss last year.

Stream has been losing money because of the rising cost of buying sports and movie broadcasting rights. Analysts say Italy's high piracy rate is hurting both companies. Stream has 850,000 clients.

As part of the purchase, News Corp. will pay $465 million to reimburse Italian Serie A soccer rights as well as broadcasting licenses, News Corp. spokeswoman Alison Clark said.

The sale of Telepiu puts an end to about a year of talks--and disputes--between Messier and Murdoch over who will control the Italian pay-television market. It also marks a reversal for Vivendi's strategy to expand in Europe after losses at Canal Plus mounted.

"The sale of Telepiu, which accounts for only 10% of our subscribers in Europe, is a first demonstration of our willingness to bring Canal Plus back on track for profit and growth and focus on the most promising markets," Messier said in a release. Three weeks ago, Messier dropped a plan to buy Stream from News Corp. and merge it with Telepiu.

Italian regulatory authorities must approve the agreement. Both companies said they would drop lawsuits filed against each other once the purchase is completed. No timetable was given.

Murdoch and Messier have been vying for control of Europe's pay-TV market since 1998. Tension between News Corp. and Vivendi increased when Messier started building a stake in BSkyB in 1999 without first consulting Murdoch. That ended discussions to merge BSkyB with Canal Plus. Last month, Vivendi completed the sale of its stake in BSkyB.

Canal Plus in March filed a $1-billion piracy suit against News Corp.'s NDS Group, accusing it of pilfering its "smart card" technology, which enables viewers to access pay-per-view digital television programs in Europe.

Messier dropped a plan to buy Stream the day after Vivendi got clearance to do so from Italian authorities, saying the regulators had imposed new conditions on the purchase. Murdoch objected and said he wouldn't let Messier walk away from the agreement.

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