Vivendi buys USA Networks assets

Under the deal, USA Networks boss Barry Diller will head the new Vivendi Universal Entertainment unit

PARIS, France -- Vivendi Universal is buying the entertainment assets of USA Networks in a deal the French media giant values at $10.3 billion.

The cash and stock deal will create a major film and television unit in the United States and give Vivendi access to a huge distribution market for its entertainment products.

The purchase from Liberty Media creates a new company, Vivendi Universal Entertainment, with Vivendi holding a 93 percent stake in the new unit.

USA Networks boss Barry Diller will be chairman and chief executive of the new unit, which will include Universal Studios -- giving Diller control of one of Hollywood's biggest movie and production studios.

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Universal Studios has been paired with the European pay-TV Canal Plus Groupe within Vivendi. The new alignment puts the future status of Canal Plus within Vivendi in question.

Vivendi, which also owns Universal Music, has been looking for a U.S. partner to expand its production and distribution.

Its purchase of USA Networks gives it control of the top-rated USA Network, the Sci-Fi Network and Newsworld International, as well as Ticketmaster and other direct marketing units.

"It is a sold cable channel, it's also a platform of diverse programming interests," David Staples of Fitch Ratings told CNN.

"And Vivendi has dramatically transformed itself over the past few years into having quite a balanced distribution portfolio relative to what people thought it would have two years ago."

December has been a busy month for Vivendi Chairman Jean-Marie Messier.

Since the resignation of his merger partner Edgar Bronfman two weeks ago, Vivendi has said it will sell a $1.5 billion stake in Britain's B-Sky-B and invest $1.5 billion in U.S. satellite network Echostar Communications before it merges with Direct-TV.

All of this activity is coming without breaking the bank.

For instance, Vivendi already has a major stake in USA Networks and will shell out $1.62 billion in cash for an operation that will add $200 million to its net income and create a cash flow of more than $350 million in 2002.

The bulk of the purchase will be paid for with $7 billion in USA Network stock that it already owns, with $1.65 billion in Vivendi treasury stock going to USA Networks shareholder Liberty Media, Vivendi said.

Putting little cash up front for a money-spinner follows the path taken by Vivendi's competitors.

"Among the U.S. operations like Viacom, AOL Time Warner, Disney, all of them have been making acquisitions. But all of them have been generating very strong cash flow," says Staples.

"When you look at Viacom and AOL Time Warner, their cash flow being generated by their businesses has enabled them to reduce debt and to focus on their businesses."

As the world's second-largest media company, Vivendi hopes the deal can expand its presence in the United States and help it compete with the other major players.

USA Networks produces TV shows and made-for-TV movies through Studios USA. It is selling the 13 television stations it owns to Univision, the Spanish language television company.

The Vivendi-USA Network deal had been rumoured for several weeks.

Vivendi shares rose about 2 percent in Paris on Monday after the announcement.

-- CNN Correspondent Jim Boulden contributed to this report.