Vivendi Universal: In a Strategic Flux

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On a Buying and Selling Spree Contd...

Meanwhile, the September 11 terrorist attacks in the US and the crash of the dotcom business added to the air of uncertainty surrounding VU. Most of the online businesses that VU bought during the peak of the dotcom boom had started to make losses (Refer Exhibit V for details). In spite of the rising debt burden, VU was reportedly planning to continue acquiring new businesses. In December 2001, Messier acquired the entertainment business of USA Networks9 by paying $ 10.3 billion in shares and cash. After the acquisition, USA Networks (which included Expedia, Hotels.com and Ticketmaster) was renamed USA Interactive. Messier also bought EchoStar, the US-based Satellite broadcaster, for £ 1 billion. In early 2002, VE acquired the UK-based Southern Water for $ 3.1 billion, in order to expand its water management business in UK. By now, Messier had reportedly spent € 100 billion (in 2000 and 2001) on acquisitions (Refer Exhibit I for the complete list). Company watchers were of the opinion that the rapid pace of the acquisitions and the questionable strategic logic behind some of them could land VU in serious trouble. They were proved right when VU started encountering one problem after the other.

The Beginning of the End

In March 2002, VU reported a loss of € 13.6 billion. These losses were mainly attributed to the € 15.7 billion written down for the companies purchased before the dotcom bubble burst (Refer Exhibit III for the list of companies acquired during the dotcom boom). The company's financial troubles were aggravated by Messier's statements in the French media suggesting that the 'French Cultural Exception was dead.' This sent shock waves throughout France since the concept of 'Cultural Exception' was very dear to the French people¹⁰.

Messier's statements were seen as an attempt to limit/stop Canal Plus' association with the French film industry. Since Canal Plus was a key player in shaping the French film industry over the years (by financing movies as well as by buying their broadcasting rights), Messier's stand was unacceptable to many French nationals.

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9] Including 20% owned by Liberty's and 27% owned by Multithematiques Television group.

10] Unlike the privately funded movie industry in the US and India, the French film industry is financed in a unique manner through government subsidies, special taxes and TV channels (it is mandatory for TV channels to invest in movies in France). The idea behind supporting the French movie industry in this manner was to help it withstand the competition of movies from US and other parts of the world.