Diller's Messy Business Gets Messier

No matter what Vivendi Universal (V - Cramer's Take - Stockpickr) and USA Networks (USAI - Cramer's Take - Stockpickr) said Monday, you can't have integration without aggravation.

Just ask the veterans over at AOL Time Warner (AOL - Cramer's Take - Stockpickr).

In announcing a $10.3 billion acquisition of entertainment assets from USA, Vivendi Chairman Jean-Marie Messier implied it would be easy for his company to get what it wants out of the deal: a television distribution organization in the U.S. that would help get the full value out of Vivendi's entertainment business, which includes Universal Pictures and Universal Music Group. In Monday trading, Vivendi's shares closed up $3.15, to $52.10, and USA Networks' finished up $1.20, to $25.02.

No Pain, No Gain

But though Messier and USA Chairman Barry Diller pooh-poohed talk of rivalries among executives and of debates that might not be collegial, the recent history of AOL Time Warner indicates that you don't gain synergies without a little pain. Vivendi, for the record, is expecting $100 million worth of synergies immediately for earnings before interest, taxes, depreciation and amortization -- a commmon media industry financial yardstick -- on top of the more than $600 million in EBITDA it was expecting for 2002 before the USA deal.

At their New York news conference to announce the deal on Monday, Messier and Diller politely waved off reporters' suggestions that the reunification of USA Networks' entertainment properties with Vivendi's Universal Studios Group -- the TV assets were split off from Universal in a 1998 deal -- might cause some territorial battles. They also dismissed talk that Diller, slated to head the TV/movie business to be called Vivendi Universal Entertainment, might not be happy as second fiddle to Messier and Vivendi, which will control 93% of VUE.

The two men's relationship is "candid, direct and business-focused," Messier said. As for the fate of other executives, starting with Vivendi operating chief Pierre Lescure, Vivendi's man in Hollywood whose portfolio in the new VUE suddenly seemed awfully unclear, he's "made a good job," Messier said, and people wouldn't be asking such pesky questions if he hadn't done such a good job.

Pardon the press corps for wondering whether the deal might result in a round of executive musical chairs. One is forced to speculate on that possibility when one exits a news conference to receive a freshly printed press release announcing not much more than, "Jean-Marie Messier, chairman and chief executive officer of Vivendi Universal, confirmed today that Ron Meyer, president and chief operating officer, Universal Studios, is the number-two person in the U.S. to Barry Diller, chief executive officer, Vivendi Universal Entertainment."

Think of Ted Turner

Perhaps Vivendi believes that worldwide synergies come easily. Messier spoke of a committee of Vivendi Universal CEOs that would meet for a half day a month to help integrate the company and extract all possible synergies.

But over at AOL Time Warner, it's taking more than that to get people to start working together, starting with a rearranged incentive plan that shook the well-entrenched compensation tradition at Time Warner. To get everyone working on the same page, more than one executive, including Chief Financial Officer Mike Kelly and cable TV veteran Joseph Collins, have seen their longtime responsibilities erased.

Even so, AOL Time Warner failed to meet the synergistic financial targets it vowed it would meet in 2001, following a year and a half of gung-ho insistence it would.

Perhaps Vivendi Universal is already aware of the hazards ahead. Compared with how AOL Time Warner sold its deal, Vivendi made only modest promises in writing for what USA's entertainment properties and Universal Studios Group might do together. In their announcement -- which forecast relatively small revenue synergies of $60 million -- they made a reference to the opportunity to "fully monetize" Universal movies such as Erin Brockovich and Jim Carrey's Grinch.

Maybe that's the strategy -- not to sell the synergies but to undersell them.