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Dealin' Diller Displays Patience

7/28/2002 8:00 PM Eastern

Despite rampant speculation to the contrary, USA Interactive Inc. chairman Barry Diller told analysts and reporters last week he has no designs on acquiring the entertainment assets of Vivendi Universal S.A.

But Diller said other acquisitions — including a previously announced plan to acquire the remaining stakes in online companies Ticketmaster, Expedia Inc. and Hotels.com — are ongoing.

Asked about his interest in buying the Vivendi assets during a conference call regarding USAI's second-quarter earnings, Diller responded: "Zero."

But he perked up when Expedia, Hotels.com and Ticketmaster were brought up.

USAI had proposed tendering shares for the stakes it didn't already own in the three online companies in June, but pulled back that offer when the respective companies' stock prices fell.

Although Expedia has hired advisers regarding USA's tender offer and any deal appears to be in limbo for the moment, Diller said on the call that he was willing to wait it out.

"I think that if you're a USA shareholder, though, it's wildly clear that a simplified and consolidated operation for us is the best thing," Diller said. "And we have every right and every reason to get there, and we also have the patience to get there. Our feeling is that eventually, we will prevail in this process."

$4B IN CASH

But the future of USA Interactive isn't dependent on consolidating the three units.

With about $4 billion in cash, Diller said the company could use its money to buy back its own shares, acquire other assets or to make additional investments.

"We will buy our stock, hopefully an inch before this crazed market turns," Diller said.

Although past plans to spend up to $9 billion to gain a 20 percent share of the electronic-commerce market are on hold for the moment, he added, in the long run the company will not sit on its cash reserves.

"World conditions have changed and we're going to react to that in the short-term," Diller said. "Long-term, we're not going to keep billions and billions of dollars in cash, sitting in cash, for cash's sake."

For the quarter, USAI's revenue increased nearly 20 percent to $1.1 billion, fueled by strong performance at Expedia and Hotels.com. Net income surged — mainly the result of one-time gains associated with the sale of its entertainment assets to Vivendi — to $2.3 billion, or $4.87 per share, compared with $39.6 million, or 9 cents per share, in the same period last year.

Excluding the one-time gain — about $2.4 billion — and other nonrecurring items (including a $17.1 million charge related to the closing of Home Shopping Network's "Español" initiative and a $75 million charge for equity losses related to HOT Networks, a European home-shopping initiative), USAI earned 3 cents per share in the period, compared to 1 cent per share in 2001.

Diller is also chairman of Vivendi Universal Entertainment, the joint venture formed last year that combined USA's cable and film assets with Vivendi's Universal Studios. He had been rumored to have his eye on purchasing VUE outright, after Vivendi ran into trouble with its growing debt.

Vivendi last week announced the first of its restructuring plans, involving its French TV group Canal Plus. According to the plan, Vivendi would separate the French assets of Canal Plus Group into a publicly traded company and sell the rest of the pay-TV unit piece by piece.

September