USA Networks May Prove Vital to Vivendi Universal - TheStreet

USA Networks

(USAI) - Get Report

-- the company that media mogul extraordinaire

Barry Diller

has spent the last several years cobbling together -- could be the key to the long-term success of the new company known as

Vivendi Universal

.

That new company, which will be formed once

Seagram

(VO) - Get Report

,

Vivendi

and

Canal Plus

complete the $46 billion

merger announced Tuesday, will rely on USA Networks as the main distribution arm for its content in the U.S. Vivendi Universal would trail only

America Online

(AOL)

/

Time Warner

(TWX)

among the biggest media companies in the world once their respective mergers are completed.

In Europe, Vivendi Universal will have a strong presence in cable -- Canal Plus owns the France's leading cable company as well as a movie studio -- as well as on the Internet (through the Web portal

Vizzavi

, in which Vivendi owns a big stake). In the U.S., however, its only distribution arm will be through USA Networks, in which it will own a 42% stake.

USA Networks owns the

USA Network

,

Sci-Fi Channel

and

Home Shopping Network

cable channels. Through its USA Broadcasting division, it owns 13 local television stations.

USA Networks also owns

Ticketmaster

as well as 60% of its Internet sister company

Ticketmaster Online-Citysearch

(TMCS)

.

Jean-Marie Messier, chairman and chief executive of Vivendi, called both USA Networks and Diller "great assets" and said USA Networks' access to TV distribution in the U.S. is key to Vivendi's strategy.

"The core of that is Chairman and CEO Barry Diller, and I hope to draw on his enthusiasm," Messier said. "Relations between USA Networks and Seagram have been a bit frustrating over the last few years, and I think that here is a window outside the States, and we are very open-minded."

USA Networks has been an aggressive buyer since Diller took over the company, but as a result of the creation of Vivendi Universal, the company may have to "redefine acquisitive," one USA insider said. The hope at USA Networks -- and on Wall Street -- is that Diller will have more freedom to do bigger deals than he has been able to under the tight reign of Seagram, which can veto any deal that's more than 10% of USA's roughly $16 billion market capitalization, or $1.6 billion.

The fact that Seagram has been on the block for much of the last year probably limited Diller's ability to do any big deals, analysts say, especially stock deals that might have diluted the size of Seagram's stake in the company at a time when Seagram was looking for a buyer.

Both Messier and Edgar Bronfman, Jr., president and chief executive of Seagram, deflected questions at a New York City news conference Tuesday as to whether Diller will be asked to join the board of the new company.

Investors seem to be bullish on USA Networks' prospects once the merger is completed: USA stock has jumped nearly 9% since word of a deal first leaked last week. USA shares closed up 3/8, or 2%, to 23 7/16 on Tuesday.