Vivendi Universal: In a Strategic Flux

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Mending the Mistakes Contd...

As part of these investigations, the prosecutors scrutinized the financial reports for 2000 and 2001 and also tried to find out whether overly optimistic forecasts were made for 2001 and 2002. The prosecutors also tried to identify the people responsible for the wrongdoing and to determine whether there was any criminal intent. VU faced similar investigations by US authorities in November 2002 in response to a class action suit14 filed by a group of US investors making similar allegations. History Repeating Itself? In November 2002, news reports stated that VU was trying to raise money to buy British Telecom's (BT) 26% stake in Cegetel (VU held a 44% stake in Cegetel15 while Vodafone held 15%). Analysts felt that VU was committing a major mistake by planning to spend £ 2.5 billion to thwart rival Vodafone's attempts to buy Cegetel (Vodafone had earlier made a £ 2.5 billion bid for the BT stake and had offered £ 4.3 billion for VU's stake. However, VU had the right to preempt Vodafone's bid with a matching offer).

Analysts were of the opinion that Fourtou's ambitious plans may land the company in more trouble. Commenting on this, an analyst at WestLB Panmure, a leading financial services provider based in Germany, said, "It is a matter of life or death for Vivendi - it simply cannot afford to buy out BT and any attempt to do so would probably be catastrophic." Analysts observed that even though the company planned to raise £ 7.6 billion from asset disposals over the next 18 months, the rush to buy out Cegetel was creating confusion among investors and alarming its banks. Even Vodafone's CEO, Sir Christopher Gent, reportedly said that VU could sink deeper into troubles if it tried to acquire Cegetel.

In November 2002, VU sold its Latin American Publishing units for £ 1.2 billion to Hachette, a French business-publishing house. During the same month, VU also sold half of its 40% stake in VE to a group of French investors¹⁶ for € 1.856 billion. This was seen as an attempt to raise money to purchase Cegetel. Previously in late 2002, VU had reportedly turned down an offer made by Marvin Davis, an oil merchant, to buy the entire stake of VE for $ 20 billion.

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14] A class-action suit is a suit filed to protect the interests of a group of individuals who are affected or may be affected by a perceived fraud or misconduct of a similar nature. The number of people could range from under 10 to millions.

15] Cegetel was Europe's most sought after telecom company. Both VU and Vodafone were competing to gain a majority stake in the company. Vodafone had bid £ 8.3 billion to buy a majority stake in Cegetel including BT's 26% and SBC’s 15% stake. After the VU buyout, Vodafone had to settle for a 30% stake (by buying a 15% stake of Cegetel owned by SBC).

16] The investors included a number of French banks and individuals such as AGF Axa, BNP Paribas, Caisse Nationale des Caisses d'Epargne, CDC, Credit Lyonnais, Groupe CM-CIC, Groupe CNP, Credit Agricolei Indosuez, Dexia Credit Local, Eléctricité de France, Eurazeo, Generali, Groupama, Mederic Prevoyance, Société Générale and the Wasserstein Family Trust.