French fry morale at U Studios
Wall Street, company unhappy with Vivendi uncertainty
Morale is falling at Universal Studios as the Gallic chief of Vivendi U, Jean-Rene Fourtou, continues to dither over the sale of his U.S. entertainment assets.
Wall Street has been vocally unhappy with Viv's U's fuzzy strategic guidance, with Viv shares currently trading at three-month lows.
On the lot, execs and staffers are putting on a brave public face.
U Pictures brass descended on ShoWest last week to unveil their 2003 slate, which shifts into high gear on Memorial Day with the Jim Carrey comedy "Bruce Almighty," followed by tentpoles like "The Hulk" and sequel "2 Fast 2 Furious." U Pictures is forging ahead with an ambitious 2004 slate, ramping up production on pricey tentpoles like "Van Helsing" and "Riddick," the sequel to "Pitch Black" with Vin Diesel.
In an effort to trim spending and minimize risk, U Pictures recently sold international distrib rights to upcoming titles "Seabiscuit" and Peter Berg's untitled action-adventure pic (formerly "Helldorado") starring the Rock and Seann William Scott – moves that could result in short-term savings of more than $75 million.
But with two long months to go before summertime, the studio is stuck in the Hollywood equivalent of financial and strategic purgatory, as Vivendi Universal Entertainment prexy Ron Meyer struggles to stave off the perception in Hollywood that U is slashing budgets and laying off staff.
VUE shareholder and CEO Barry Diller continues to make the final calls on budget decisions.
It's been reported that, under Diller, U's film production and marketing budget has been cut by 25% for this year. Studio sources declined to comment on the budget.
At the same time, Viv is trying desperately to refinance another $4 billion to keep itself afloat.
In one related deal, the VUE unit is within a week of closing on a $1 billion-plus refinancing of its own corporate loans (Daily Variety, Oct. 21).
The new financing – which is being led by JPMorgan along with Bank of America -- primarily features commercial debt tied to projected revenue from film library. About $950 million of the financing comes from the projected catalog income and another $670 million from conventional bank loans, for a total VUE financing of $1.62 billion.
Meanwhile, the stress of cost-cutting, risk-reduction measures, slow growth and utter confusion about the future is taking its toll on the troops.
The company officially denies there have been any mass layoffs or budget slashing, but sources close to the company insist some TV and film staffers are growing insecure about their jobs and updating their resumes.
Much is made of the amount of money Time Warner staffers lost on their AOL stock options, but it's worth noting that most Viv U execs are sitting on options that are at least $35 per share under water.
The unceasing rumors about when, how and to whom Fourtou will sell the U.S. entertainment assets certainly doesn't help morale, nor does the fact that the studio itself is increasingly looking like the ugly duckling to would-be suitors.
With operating income growth slowing to a crawl, despite healthier, DVD-fueled operating margins in 2002, some financial pundits value the studio at slightly less than either the music division or USA Networks. And so far, only Marvin Davis' leveraged buyout group seems to want to buy the studio business, while other interested parties say the cable networks are of more interest.
Fourtou's French reserve is, by all accounts, as exasperating to his American staff as it is to would-be buyers of his assets and potential investors in his company's stock. Davis' crew is in Paris working on the financing for its estimated $20 billion offer, but still seems to get only half an ear from Fourtou.
Company insiders say they resent the style of communications (or lack thereof) that Fourtou has elected to adopt in his silent-auction process.
It's as unclear now as it was three months ago what VUE chief exec Diller's designs on the business are.
Some say Diller these days simply wants to get his money out of U and has given up on the idea that he can save the business. Others insist he's deep in negotiations with bankers to walk away with cash and some choice VUE assets, with or without John Malone's Liberty Media as partner.
At the same time, the financial picture at the Gallic concern grows murkier by the day.
Fourtou has made good on his promise to trim its debt, having agreed to sell around $7 billion in assets so far. But many of those sales haven't yet put enough Euros in Viv U coffers to meet a host of big bills on its $15 billion total debt load.
Viv has some E5.24 billion ($6.88 billion) in debt maturities and other contingent liabilities due this year, with another $10 billion or so due in March 2004. The company is believed to be working to raise and refinance some $4 billion worth of credit lines, high-yield bonds and bridge loans in order to avoid a cash crisis later this spring.
Merrill Lynch believes Viv U should have enough cash to last through to September 2003 if can manage the re-financing, but that long-term solvency still depends on the one large asset that it has left to sell: VUE.
(Carl DiOrio contributed to this report.)
