June 30 (Bloomberg) -- Vivendi Universal SA, weighing six potential buyers for its U.S. entertainment unit, will probably select the bidder with the most cash over candidates borrowing funds, investors said.

Vivendi may narrow the list of six candidates, which includes Edgar Bronfman Jr., Marvin Davis, General Electric's NBC, John Malone's Liberty Media Corp., Metro-Goldwyn-Mayer Inc. and Viacom Inc., to two or three as soon as tomorrow, when the board meets, people familiar with the situation have said.

``The price in cash will make the difference,'' said Jerome Forneris, who helps manage about 5 billion euros ($5.7 billion) including Vivendi shares at Banque Maurel Martin in Marseille.

Chief Executive Officer Jean-Rene Fourtou needs cash to reach Vivendi's goal of cutting debt below 10 billion euros at the end of 2003 and returning the company to investment grade in 2004. Fourtou will probably try to sell the U.S. media unit, including the Universal studios and the USA and Sci Fi cable-television networks, to a single buyer to avoid tax liabilities related to an acquisition from Barry Diller, analysts said.

``The priority for Vivendi is to get the maximum of cash after paying the potential liabilities,'' said Julien Raffelsbauer, a credit analyst at Banc of America Securities in London. ``That means selling Vivendi Universal Entertainment in one block and in cash is the ideal solution for them.''

Alain Delrieu, a spokesman for Vivendi in Paris, declined to comment.

Next Round

Malone, Viacom and Bronfman might move on to the next round, investors including Forneris said. Malone said on June 18 that Liberty had about $6 billion in cash and another $10 billion to $11 billion of ``immediately liquid assets.''

Liberty bid for Vivendi Universal Entertainment, which also includes television studios and amusement parks, plus Universal Music Group, people familiar with the matter have said.

Vivendi in November rejected Davis's $20 billion cash-and- stock offer for the entertainment and music assets.

New York-based Viacom, owner of the CBS network, told Vivendi last week it was interested in the cable-TV assets, people familiar with the matter have said. The third-largest U.S. media company may expand its interest beyond the cable assets, the people said.

A group led by Bronfman, whose family owns 4.2 percent of the Paris-based company, made an offer for all of Vivendi Universal Entertainment and the music arm, the world's largest record company, a spokesman for Bronfman has said.

Bronfman Financing

Bronfman has lined up Wachovia Corp. to arrange debt financing for the offer. Merrill Lynch & Co. is providing financial advice and debt financing, the spokesman has said. Bronfman's family would contribute some cash to the bid, a Bronfman spokesman said earlier this month, without saying how much.

Davis, who once owned the 20th Century Fox film studio, in November offered $15 billion plus $5 billion in assumed debt for Vivendi Universal Entertainment and the music business. Vivendi turned it down. Davis submitted a bid on June 23, spokesman Allan Mayer has said, without giving details.

Kirk Kerkorian's MGM submitted a bid that didn't include the music, people familiar have said. NBC expressed interest in the entertainment assets and not the music unit, other people familiar said. NBC's plans don't involve cash, people said.

Tax Constraints

Vivendi's choice is constrained by tax liabilities related to former CEO Jean-Marie Messier's acquisitions of the cable networks from Diller's company last year and of Seagram Co. from the Bronfman family in 2000. Messier had spent $77 billion on purchases to transform 150-year conglomerate into the world's second-largest media company after AOL Time Warner Inc.

A year ago today, Messier agreed to leave after losing support from the board, which blamed him for piling up debt that swelled to 17 billion euros at the end of June last year, leaving the company on the brink of bankruptcy. Debt was cut to 14 billion euros on May 31.

Investors said it's difficult to evaluate the bids because they are so varied.

``We don't have details on what's on the table,'' said Philippe Perrody, who helps oversee about 2 billion euros of assets including Vivendi stock at Banque Privee Saint Dominique in Paris. ``I'm waiting for the actual sale to get a better idea of what Vivendi will look like in the future.''

Vivendi's ideal offer will probably exclude the music group, which is a separate division, credit analyst Raffelsbauer said.

Slumping Music Sales

Music sales have been slumping in the past three years, hurt by piracy and competition from other leisure products, such as mobile. Offers for the music unit may not match Vivendi's expectations, Raffelsbauer said.

``The valuations for the music unit are unlikely to match Vivendi's view of its medium-term value,'' Raffelsbauer said.

Fourtou told investors in April he didn't plan to sell Universal Music Group for the moment.

Vivendi shares rose 13 cents to 16.26 euros Friday, ending the week 2.6 percent lower. They've dropped 18 percent in the past year.

The cost of insuring Vivendi debt against a possible default has risen in the past week. The company's credit default swaps cost 245 basis points, up from 230 basis a week ago. Still, the cost had fallen from a high for the year of 525 basis points reached April 2, according to Morgan Stanley prices. A basis point is 0.01 percentage point.

That means it costs 245,000 euros per year to insure 10 million euros of bonds and loans for five years, below the six- month average cost of 364,600 euros.

Last Updated: June 29, 2003 20:25 EDT