Vivendi appeared unlikely to sell off any part of its entertainment unit until it makes a decision on the the future of the whole business, a source close to the Davis bid said.
But any eventual deal to spin-off the video game business alone would dwarf more recent game industry mergers, in which publishers like Sony, Electronic Arts and Activision Inc. have bought small game developers in cash and stock deals worth a few tens of millions each, analysts said.
Some industry watchers said Sony, Microsoft and EA, which dominate the market for game consoles and independent software, are likely the only ones in a position to readily acquire Vivendi's game unit, which like the other entertainment assets has been the subject of heavy speculation as its French parent company restructures.
A spokeswoman for the Vivendi games unit declined to comment. A spokesman for Electronic Arts said the company would not discuss merger strategy "prior to the announcement of an agreement."
Microsoft said it does not comment on rumors. A spokeswoman for Sony was not available for comment.
In recent months, senior executives from Electronic Arts, Activision, and other dominant industry players have said the games business is ripe for consolidation, though much of that is expected to come from attrition as smaller publishers find themselves no longer able to compete for limited retail space.
As Vivendi worked through a cash crisis earlier this year, its games business was thought by many analysts to be an easily-sold asset, especially after it sold its publishing division, which had previously housed the games business.
VALUE OF UNIT DEBATED
However, investment bankers and analysts have debated the value of the unit, with some saying Vivendi itself valued the division between $1.5 billion and $2 billion while others said that was far too high.
"There's no way that those assets are worth more than one times' sales," Wedbush Morgan Securities analyst Michael Pachter told Reuters, pegging the unit's annual sales at $600 million.
Pachter speculated that a more likely potential suitor for the unit would be Activision, which he said has $550 million in cash on hand and a recent shelf offering that, combined, would give it more than $1 billion in capital to pursue a deal.
A spokeswoman for Activision said the company would not comment on industry rumors.
Vivendi executives have said the company is on a better footing now, and Barry Diller, the media mogul who runs Vivendi's entertainment assets and also owns a stake in the company, has dismissed Davis's bid as "a lot of silliness." Sources have also said that Diller sees games as an important sideline to the overall entertainment business.
Vivendi's game unit has had a number of popular titles over the years, including PC games in the "WarCraft" and "Diablo" franchises, and games based on J.R.R. Tolkien's "Lord of the Rings" books. Electronic Arts has the rights to make games based on the new "Rings" films.
Various industry sources, including market research service NPDFunworld and retail group the Interactive Entertainment Merchants Association, have said in recent weeks they expect U.S. game hardware and software sales to reach somewhere between $10 billion and $12 billion this year, a new record.
In September, Ken Cron, the head of Vivendi's game unit, told Reuters the French parent company had no plans to sell the games business and was in fact open to making acquisitions.
Reports have since surfaced that Vivendi would consider an initial public offering for part of the games division in 2003, though no papers have been filed to that effect with regulators.
Company sources have said that nothing is expected to happen with any of the entertainment assets until January when the Vivendi board next meets.
Source: Reuters.