Vivendi Universal: In a Strategic Flux

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The Beginning of the End Contd...

By the time Messier quit, VU had net debts of € 19 billion including repayments amounting to € 5.6 billion (in March 2003). Messier had failed to deliver on his promise of creating a company that would be 'the world's preferred creator and provider of personalized information, entertainment and services to consumers anywhere, at any time and across all distribution platforms and devices." Media reports mentioned that though it could have been possible to achieve synergies between music, films and publishing, no obvious advantage could have been gained by combining European transport and water supply with US cable TV. VU's diverse interests and increasing debts severely affected its stock market performance. The share that traded for more than $ 70 in early 2002 was traded for less than $ 14 in July 2002. When Moody's, a US-based credit rating agency, downgraded VU's debt to 'junk' status,11 there was widespread panic at the stock markets and the shares plummeted further. Messier's departure did not seem to be having any significant impact on the company's stock price movements as doubts continued about its future prospects.

Mending the Mistakes

In order to restore investor confidence, the company appointed new members like Claude Bebear, popular politician and chairman of the Axa insurance group, and Henri Lachmann, head of Schneider Electric. The company's new chairman Jean-Rene Fourtou (Fourtou), former deputy Chairman of Aventis drugs company, began a major restructuring of the group's businesses. Fourtou appointed Goldman Sachs Bank to monitor the company's worsening cash flow problems. He began discussions with VU's creditors to plan out new credit facilities. Fourtou also entered into negotiations with two banks, Société Générale and BNP Paribas,¹² to obtain new loans for the company.

The company had also reportedly approached other institutions like Rothschild, Citigroup's Salomon Smith Barney, Lehman Brothers Holdings, Deutsche Bank, Credit Suisse First Boston, JP Morgan Chase, Merrill Lynch, Morgan Stanley and UBS Warburg to help it restructure its debts. The new management created two new committees - financial and strategic - to resolve short term finance issues and to ensure transparency in operations.

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11] Junk status refers to the credit rating given to debt issues that are below the investment grade and are considered speculative due to an increased chance of default. Lower ratings raise the cost of borrowing by forcing companies to pay a higher interest rate on new debt issues.

12] 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.