Liberty Media Beats Vivendi in Court

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Englewood, Colorado-based Liberty Media Corporation (LMCA) has won a legal petition, filed in 2003, against French entertainment group Vivendi Universal S.A. According to the verdict, the French media giant will have to pay $956 million in damages to Liberty Media Corp. in a breach of contract case. We believe that the receipt of the compensation payment will significantly boost Liberty Media’s already impressive liquidity position.

Liberty Media Corp. claimed that the French media group had deceived it while buying the American media conglomerate’s stake in Barry Diller’s USA Networks for $10.3 billion. According to the deal, Liberty Media received 32 million treasury shares of Vivendi in addition to another 5.2 million shares for its stake in a European cable joint venture with Vivendi. After the deal, Liberty Media accused that despite going through a liquidity crisis Vivendi have presented a well balanced picture of its financial condition before the deal, which led to an increase in its share value, thus making the share acquisition from the French company more expensive.

Liberty Media, which has its own interest in a wide range of media companies including Starz Media LLC, True Position Inc, Sirius XM (SIRI), also wants to claim prejudgment interest which could almost double the reward for them. However, Vivendi has protested vehemently against the verdict and denied any wrongdoing. It is believed that the reward money won’t be final until other pending issues are settled.

These types of charges are not new for Vivendi; it had been found guilty of misleading shareholders 57 times from 2000 to 2002 about its financial status. We believe that Liberty may pursue its investment interest in Barnes and Noble Inc. (BKS).

Recommendation:

We are maintaining our long-term Neutral recommendation on Liberty Media Corporation. Currently Liberty Media Corporation has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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