VU SINGS MUSICAL TUNE

Vivendi Universal plans to retain its music business and seek new investment partners for other U.S. entertainment assets, according to London’s Financial Times.

The move will likely frustrate a $20 billion takeover bid by Marvin Davis for operations including Universal Studios, theme parks and computer games.

Directors of the French media group, which is holding a pivotal board meeting later this week, favor a re-organization enabling it to keep control of Universal Music Group for at least two years, the report says.

The paper says the board is due on Thursday to discuss options for raising $6.5 billion this year from the potential unwinding of its U.S. entertainment portfolio, focused around its Vivendi Universal Entertainment joint venture. While the group is considering options including an outright sale, IPO or partial disposal of several assets, executives at UMG have been assured the recording and music publishing company is likely to remain a core subsidiary for the short to medium term.

Vivendi's decision could prompt Davis to withdraw the $20 billion offer he has made for all of Vivendi's entertainment assets. The Davis group, which has been lining up new sources of equity and debt financing, has strengthened its hand by adding The Carlyle Group, one of the world's largest private equity investors, to its consortium. Bain Capital and Texas Pacific Group have already indicated support for the bid.

VU, which is due to release full-year results following Thursday's board meeting, regards the approach as opportunistic and too low. "It is not obvious that the Davis group can create more value than Vivendi's own management, which is what they have to prove to their financial backers," one official told the Financial Times.

Senior VU managers last week told Universal Music executives via a video briefing not to expect any change in the structure of that subsidiary. "The clear message from Paris is that it would be foolish not to retain Universal Music when it is throwing off cash and contributing more than $1 billion in annual earnings," according to one insider.

Vivendi's French owners are also weighing other potential offers. Several other parties have expressed interest in buying pieces of the Universal group, including Viacom, News Corp. and Liberty Media, according to the Los Angeles Times.