Vivendi Universal Buying into EchoStar

Direct broadcast satellite (DBS) service EchoStar Communications Corporation and French multimedia conglomerate Vivendi Universal, SA have entered an alliance that should benefit both of them.

In a deal announced December 14, Vivendi will buy $1.5 billion in EchoStar preferred stock, valued at approximately $26/share at the time the news was revealed. The purchase will give Vivendi a 10% ownership of the satellite service and the opportunity to develop new channels for its programming in the North American market. The cash infusion will help EchoStar's ongoing effort to acquire Hughes Electronics, operator of satellite competitor DirecTV, from General Motors Corporation. The proposed merger has been subjected to anti-trust scrutiny by lawmakers and federal regulators in Washington recently. If EchoStar succeeds in acquiring DirecTV, Vivendi will own approximately 5% of the merged company.

The Vivendi/EchoStar partnership is part of an eight-year plan that will ultimately provide Vivendi with five new channels on the satellite system. The two companies will cooperate in developing programming as well as improving their technologies, the announcement said. The agreement, expected to be finalized in the first quarter of 2002, "offers us critical distribution access through a leading distributor, with tremendous opportunities to build upon our partnership," said Vivendi chairman and CEO Jean-Marie Messier. EchoStar has approximately six million subscribers; DirecTV, more than ten million.

The deal includes a stipulation that EchoStar begin implementing interactive television browsers and systems from Vivendi's Canal+Plus Media Highway on new set-top boxes (STBs). Media Highway is a technology popular in Europe. This part of the agreement may mean the production and distribution of millions of new STBs.

Vivendi is also attempting to buy a controlling interest in USA Networks, Inc., where it already has a 41% stake. USA Networks chairman Barry Diller has been mentioned as a possible replacement for Universal Music's top executive Edgar Bronfman, Jr., who recently announced his resignation, reportedly over Messier's objections. Bronfman, whose Seagram, Ltd. company acquired Universal Entertainment and was subsequently acquired by Vivendi, says he wants "to build his own empire." The Bronfman family has a 6% stake in Vivendi Universal. As part of the DBS alliance, Messier will join EchoStar's board of directors.