USA Interactive sues Vivendi Universal over tax dispute

By GARY GENTILE
AP Business Writer

LOS ANGELES (AP) Barry Diller's USA Interactive has sued Vivendi Universal over a tax dispute, saying the French entertainment company balked on its partnership agreement so Vivendi could keep the cash.

USA and Vivendi formed a joint venture, Vivendi Universal Entertainment, last year combining Universal's film, television and theme park properties with USA's cable channels and TV production company.

Diller recently stepped down as VUE chairman.

As part of the venture, USA has claimed Vivendi must make annual payments to reimburse USA for taxes coming due on income it receives from preferred shares it owns in VUE. The unusual deal was negotiated with Jean-Marie Messier when he was Vivendi Universal chief in 2001, USA claims.

``Vivendi's refusal to honor the clear commitment it made under the Messier regime is a classic case of buyer's remorse an unjustified refusal to live up to obligations clearly and knowingly made,'' the USA lawsuit states.

USA also holds a 5.4 percent common stock interest in VUE.

Vivendi Universal disputed that claim in December and the two sides have been negotiating since then. Those talks presumably have ended with USA's lawsuit, filed Tuesday in state court in Delaware, where VUE is incorporated.

USA is asking the judge to order the payments.

Vivendi Universal declined to comment, spokeswoman Anita Larsen said.

The deal, according to the lawsuit, was struck to maintain the ``full value'' of USA's preferred investment. This means that not only is USA entitled to payments from the partnership, but also additional payments to cover the taxes that will eventually come due on that income.

The lawsuit claims that during negotiations in 2001, Vivendi resisted USA's condition, but that Messier eventually agreed because he ``was extremely anxious to complete the USA/VUE transaction as part of his long-term vision for Vivendi.''

USA also claims that Vivendi never disputed the payments until after Messier and his top executives were ousted and the French company, saddled with debt, began to look for ways to conserve cash.

Vivendi is considering bids for all or part of VUE. Most recently, reports have surfaced that Apple Computer and Microsoft are interested in buying the Universal Music Group. Vivendi is also talking to oilman Marvin Davis about his $20 billion bid for all of VUE. Other companies, such as Viacom, are interested in specific cable channels.

(Copyright 2003 by The Associated Press. All Rights Reserved.)