Debt-laden Vivendi may spin off film and music division

Vivendi Universal, the French media group, is considering spinning off its entertainment businesses into a separately quoted company as part of a complex restructuring.

The move being considered includes merging some of the cable assets of US group Liberty Media with Universal's film and music interests as part of a possible public offering.

Such a deal could see Vivendi's stake in the enlarged entertainment business fall to as low as 51 per cent. The company would most likely be run by Barry Diller, chairman of Vivendi Universal's film and television entertainment division.

The separation of the entertainment businesses from the Vivendi conglomerate would prove popular within the division itself, which has been weighed down by being part of such a large diverse group. It would leave a focused entertainment group including Universal Music, home to artists such as Shaggy, Eminem and U2 as well as Universal Pictures, the film studio responsible for movies such as Gosford Park and A Beautiful Mind.

"Vivendi has said it will not sell the Universal assets outright, but it is looking at spinning them off," one source close to the company said. "Liberty Media has been discussing a number of options with Vivendi, one being merging some cable assets into the entertainment arm."

Liberty Media, controlled by John Malone, is already a key shareholder in Vivendi Universal, with a stake of close to 4 per cent. He is also a long-time ally of Barry Diller.

One possibility is for Liberty to merge its Starz and Encore cable networks and its interest in the Discovery Channel's parent with Vivendi's US entertainment business as part of a spin-off.

Vivendi's newly appointed chief executive, Jean Rene Fourtou, is drawing plans to sell assets to cut crushing debts and help resolve a cash crisis left by his acquisition-hungry predecessor Jean-Marie Messier.

Mr Fourtou has earmarked Vivendi's publishing business Houghton Mifflin and the international assets of Canal Plus for sale. But he said on Monday that he would not sell the core Universal, Canal Plus and non-US publishing assets, or stakes in French telecoms group Cegetel and Vivendi Environnement.

In a separate development yesterday, Vivendi Environnement bondholders agreed to further disentangle the utility business from its former majority shareholder Vivendi Universal.

In a vote in Paris they agreed to release the utility from its obligation to buy out bondholders if Vivendi Universal defaulted on its own borrowings.