IRS Demands $1.5 Billion From Vivendi

by Mike Godfrey, Tax-News.com, Washington

27 August 2003

Debt-ridden Franco-American media giant Vivendi Universal, which is currently locked in talks with prospective buyers of its film and television assets, was hit last week by a demand from the Internal Revenue Service for $1.5 billion in back taxes in connection with a sale of shares in chemical firm Dupont in 1995.

According to reports, the IRS informed Vivendi last week that it was challenging the way it reported a share sale by Seagram, a Canadian media-to-drinks group the firm acquired in 2000, and which brought with it many of the assets now up for sale.

In 1995, Dupont redeemed 156 million shares from Seagram for a total sum of $8.8 billion which was treated as a taxable dividend, and 80% of which was reported as an income tax deduction, leaving tax to be paid on the remaining 20%.

Seagram recorded a $1.5 billion deferred tax liability related to the deduction which under the law at that time would not be paid until Seagram offloaded its stock in Dupont.

Vivendi has insisted that the transaction was fully compliant with the tax laws in force in 1995 and has said that it believes the dispute can be resolved without an adverse impact on its financial situation.

Yesterday Vivendi said it would keep talking to two bidders for its film and television assets, rather than selecting just one offer for final negotiation. The two are General Electric Co.'s NBC unit and an investor group led by former Seagram Co. Chief Executive Edgar Bronfman Jr.

Although the IRS demand doesn't of itself compromise the proposed sale of assets, it represents one more unwanted problem for the group, which desperately needs to reduce its $14.5 bn debt mountain.

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