Vivendi Universal: In a Strategic Flux

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History Repeating Itself? Contd...

However, the effects of this encouraging news did not last long and VU posted a record loss of € 23.3 billion in March 2003. (Refer Exhibit IV, V, VI and VII for VU's financial statements). This development stunned analysts and investors who till now had under estimated the company's difficulties. However, Fourtou reassured investors, saying that the company would go ahead with the asset disposal plan and generate € 7 billion through sales by the end of 2003. The company was also working towards winning an investment grade rating from credit rating agencies. In April 2003, the company completed a $ 700 million securitization deal for its entertainment unit. This deal was a part of the company's financial restructuring plans. The company's net debt fell from € 37.1 billion in 2001 to € 12.3 billion in 2002. Analysts were of the opinion that VU would have to sell its much prized Universal Music group, Universal film studio, Universal theme parks as well as its USA and Sci-Fi cable networks to raise money to bring down its debt.

VU was reportedly negotiating with Apple Computer Inc (Apple), the California-based computer hardware and software maker, to sell its Universal Music Group. Apple had reportedly agreed to pay $ 6 billion for the acquisition. Analysts thought that VU's decision to sell the media business was a desperate move to cope with its financial troubles. Commenting on the company's status, Fourtou said, "2002 was a difficult year. 2003 would not be calmer waters...it will be a transition year...our real focus is on 2004, not on the next six months." However, whatever plans Fourtou may have for VU, the fact remained that the damage done to the once mighty French establishment would be difficult to mend in the near future.

Questions for Discussion

1. Examine the transformation of the utilities major Vivendi into Vivendi Universal, one of the world’s largest media conglomerates. Keeping the experiences of Vivendi Universal’s various strategic acquisitions, comment on the importance of synergies in any business alliance.

2. Messier’s vision of creating one of the world’s leading media conglomerates seemed to have failed miserably, with the company running into huge losses. Critically comment on the reasons underlying the problems faced by Vivendi Universal. Do you think Messier was solely responsible for the company’s losses? What strategy do you think Messier should have adopted to avoid these problems?

3. Vivendi Universal reported a loss of €23.3 billion for the financial year 2002, the biggest annual corporate loss in France’s corporate history. Comment on the factors that contributed to the poor financial management of company? Could the company have avoided this financial mismanagement? If so how?

4. Do you think that the corrective measures being taken by Fourtou would help Vivendi Universal cope with its financial problems? In the light of Fourtou’s plans to sell the media businesses, comment on the company’s future prospects.

Exhibits

Exhibit I: VU - Various Businesses
Exhibit II: Vivendi - Key Financials (1996-2000)
Exhibit III: Major Acquisitions made by Messier
Exhibit IV: VU - Consolidated Statements of Income
Exhibit V: VU - Condensed Consolidated Cash Flow Statements
Exhibit VI: VU - Condensed Consolidated Balance Sheets
Exhibit VII: VU - Actual Operating Income by Business Segment