Deal with NBC signals the end of Vivendi's American dream

Debt and the French media group's falling value led to the sale, Mark Tungate says.

Jean-Marie Messier, the former chairman of Vivendi, had a mission: to create the world's leading provider of media content. Globalisation was a reality, he said, and it was no good the French simply hiding in a corner complaining about it. Later, he simplified his philosphy: "The French cultural exception is dead."

With the announcement of Vivendi Universal's intention to sell most of its media arm to General Electric and NBC, Messier's dream has died. And his successor, Jean-Rene Fourtou, has almost completed the job of cutting back Vivendi to its bare bones. But with other media stepping up their international ambitions, where does the US deal leave Vivendi on the global media stage?

It certainly seemed as if Fourtou could not wait to get rid of Vivendi Universal Media, the cornerstone of Messier's American dream. The only haggling was over the price. Alongside GE, suitors included a consortium headed by Edgar Bronfman Jr (the vice-president of Vivendi Universal after the Seagram acquisition), John Malone's Liberty Media, and Metro-Goldwyn Mayer.

The final decision to ally with GE's NBC division was somewhat surprising.

Fourtou opted for a merger, with Vivendi retaining 20 per cent of a combined media operation. It seems that having a foothold in the US, and a hand in the entertainment business, may still be desirable for the French conglomerate.

Vivendi Universal shareholders will receive $3.8 billion in cash and see their debt reduced by US$1.6 billion. Shoring up the share price and alleviating debt lie at the heart of the story.

When Messier took the helm in 1996, Vivendi was still known as Generale des Eaux, a 150-year-old company whose core activities were litter and sewage disposal. Although in 1983, the group took a 15 per cent stake in the new subscription TV channel Canal+, and in 1987 formed the mobile phone company Societe Francaise de Radiotelephone, it was under Messier that things really started to fly and he began buying up media concerns with abandon.

Even after he had paid $34 billion for Seagram (which included the Universal entertainment conglomerate) in 2000, the shopping spree continued. Vivendi bought the entertainment assets of Barry Diller's USA Networks for $10.3 billion, snapped up the now-defunct MP3.com for $372 million and paid $1.7 billion for the US publisher Houghton Mifflin.

It took big stakes in foreign telcos, and announced a joint venture with Vodafone for an internet portal, Vizzavi.

And then the dotcom crash began to bite. Hampered by debt from all those acquisitions, and with a strategy that sat uneasily with the collapse of the dotcom economy, Vivendi Universal's share price went into freefall.

By March 2002, it had reported losses of 13.6 billion euros for the previous year - the largest in French corporate history. Messier himself had become unpopular, having relocated to a fancy New York apartment, making snide remarks about subsidised French culture, and sacking Pierre Lescure, the respected boss of Canal+.

Vivendi's shareholders wanted a head on the chopping block, and in July 2002, Messier resigned.

As his successor, Fourtou's style is in direct contrast to that of the flamboyant Messier. Generally described as a member of "the old guard", the 63-year-old was previously the chief executive of the drugs manufacturer Aventis.

Seen as a safe pair of hands, he was recruited to save Vivendi by shedding most of the assets acquired by Messier. When he first announced his plan to sell Vivendi Universal Entertainment, he added: "It would be a delusion to think that we, a French group, could become a leader in American television." Fourtou is on target to reduce the company's original debt of 37 billion euros to 11 billion euros by the end of the year. Publishing companies, overseas TV channels and internet concerns have all been sold off. He has reduced the empire's workforce from 380,000 to 61,000.

But there have been questions about Fourtou's strategy. Does it add up to more than a fight for survival? As one analyst says: "You get the impression he's working for his creditors rather than for his shareholders."

Fourtou himself isn't saying, but when the company raised its stake in the telecommunications company Cegetel to 70 per cent (by buying a 26 per cent stake from British Telecom), matters became clearer - mobile phones are what really ring Fourtou's bell.

At a press conference announcing the NBC deal, Fourtou said that the programme of sell-offs would be complete by the end of 2004. Only then would he "reflect on (Vivendi's) strategy for its telecommunications and entertainment interests".

Still embroiled in a dispute with Vivendi over his payoff (which he says comes to around 20 million euros), Messier has declined to comment on the news. But one thing is certain: the Vivendi Universal he created is gone forever.

ASSETS SOLD

- A 50 per cent stake in internet portal Vizzavi sold to joint venture partner Vodafone for 142 million euros.

- An 89 per cent stake in Canal+ Technologies sold to Thomson Multimedia for 190 million euros.

- Vivendi Universal Publishing sold to Lagardere for $1.2 billion (awaiting approval from monopolies authorities).

- A 20.4 per cent stake in Vivendi Environment sold to group of investors, for 1.8 billion euros.

- Italian pay-TV channel Telepiu sold to News Corp and Telecom Italia for 871 million euros in debt and cash.

- Vivendi Universal Entertainment to merge with General Electric's media holdings for $3.8 billion in cash and $1.6 billion debt.

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