VIVENDI TAKES UMG OFF THE TABLE

First, the consortium led by oil billionaire Marvin Davis and former Seagram CFO Brian Mulligan was told he would be scratched from the proceedings unless it increased its bid.

Second, VU has ostensibly taken Universal Music Group out of the auction. Having successfully averted financial disaster, the VU board determined it now has the option of hanging onto the marketshare-leading unit until conditions improve and it can command a better price.

Third, those bidders who choose to move on to the next stage must meet a minimum of $11.5 billion for the film studio, theme parks, television and cable holdings.

"After two months of work, the process is moving at a sustained pace and very significant competition has arisen,” VU said in a statement. “All potential acquirers or partners for VUE have made a first proposal with various parameters, valuations and other conditions as expected. In-depth negotiations will now be pursued with selected bidders.”

Davis and his backers might not be out of the running, if they up their bid, but according to published reports, the Davis plan relied heavily on income from UMG to make the numbers work. Davis was one of three bidders, along with Liberty Media and the group led by Edgar Bronfman Jr., to include UMG in their bids. Those groups will now have to revamp their proposals to exclude music.

Reports also suggest Davis might stay in the running by joining forces with another bidder such as Viacom, which is said to be only interested in VUE’s cable holdings.

While most reports maintain Davis was told simply to up his bid or hit the road, the New York Times said one insider complained that the structure of his offer was “dubious and unattractive.” Others have suggested that Davis pulled out of the running voluntarily upon finding UMG was no longer for sale.

However, one executive told the Times, "If someone made a big enough bid for music, the French would be willing to sell it. All you know now is that there is no clear winner who has come in with a preemptive bid for all the assets."

Of the remaining bidders, which include Liberty, Viacom, the Bronfman consortium, MGM and NBC owner General Electric, Liberty and MGM are thought to have the early lead, having already submitted attractive, cash-heavy offers.

Meanwhile, VUE’s Universal Studios film unit is having a bang-up summer, with films like the recently released Bruce Almighty and The Hulk increasing the division’s shine and possibly driving up the price.

Second-round offers for the VUE assets are expected in two weeks. Vivendi said it does not expect to make a decision on the bids before September.