Fourtou: VU staying in biz
August 20, 2002 - The Hollywood Reporter
Vivendi Universal plans to retain its U.S. film and TV unit as well as Universal Music Group, the world’s largest music firm, as it tries to sell U10 billion ($9.76 billion) in noncore assets to reduce a crippling debt load, CEO Jean-Rene Fourtou said in a letter to employees and stockholders that became available Monday.
Wall Street observers took the comments as a further sign that Fourtou could eye a spinoff of Vivendi’s entertainment assets when market conditions strengthen (HR 8/16). “I think their long-term intent is an IPO once the market recovers some more,” Kaufman Bros. analyst Paul Kim said. “If you value their entertainment assets at $15 billion-$20
billion, they could sell 20% or so to the public for several billion dollars. The question is if there will be appetite for that much equity.”
Others focused on careful language in Fourtou’s letter that they said implies that the new CEO has not yet made up his mind on whether to stay in the media space for the long term.
“It seems like they are turning their attention mostly to French holdings,” one analyst said.
Either way, Vivendi shares got a big boost Monday—after a devastating 45% stock market drop last week—as Fourtou reiterated his confidence that Vivendi can leave its tight liquidity position behind and emphasized he won’t rush to sell most properties at any price possible. The company’s market capitalization fell to just north of U10 billion last week as investors worried that the conglomerate won’t be able to sell assets at good prices fast enough to avoid bankruptcy.
In Paris, the stock closed Monday up 22.5% at 11.39. In New York, American depository shares of Vivendi surged 21.6% to 11.87.
“I want to reassure you: The company’s situation is certainly tense, but I have identified the way out of this crisis and the way to be back on track,” Fourtou said in his open letter, which was sent out Sunday night.
In the letter, the CEO confirmed the imminent sale of U.S. educational publisher Houghton Mifflin. “The immediate disposal of Houghton Mifflin, which I regret, is a vital element of our plan” to return to solid financial footing, Fourtou said.
Observers have named European publishing giants Pearson, Reed Elsevier and Bertelsmann’s Random House as potential bidders for Houghton, which Vivendi bought last year for $2.2 billion. In Paris, it is speculated that Vivendi should be able to break even on the sale. A spokeswoman declined to comment beyond Fourtou’s statements.
Fourtou’s letter also said that Vivendi was discussing the sale of some or all of its stake in Internet portal Vizzavi with joint venture partner Vodafone Group. The discussions over the sale, potentially worth more than U150 million ($146.5 million), are kept under wraps while antitrust investigations are carried out.
“This does not indicate the conclusion of any discussions currently taking place, and no further comment will be made by either party unless and until such a conclusion is reached,” Vivendi said in a separate statement Monday.
One source close to the situation said Vivendi could also sell other online assets given that many of them have eaten up money without turning a profit.
In his letter to investors, Fourtou also re-emphasized his confidence in Vivendi’s ability to expand a bank credit line, which is in the works. Vivendi recently secured a U1 billion ($980 million) loan from seven banks with another U2 billion ($1.95 billion) scheduled to be added. The additional funds are “needed to meet our commitments and avoid having to sell off assets in a rush” and at what investors have feared to be fire-sale prices, according to the CEO. The expanded credit will be available to the company by the end of September, Fourtou predicted.
Besides its Universal Music Group and Vivendi Universal Entertainment operations, Vivendi also plans to retain its publishing assets besides Houghton, including Vivendi Universal Publishing, its minority stake in utilities giant Vivendi Environment and the French parts of Canal Plus, as well as a stake in telecommunications firm Cegetel, Fourtou’s letter said. Whether the theme park operations will remain a part of Vivendi’s broader entertainment holdings remains unclear, however, as analysts keep describing them as fringe assets.
Fourtou listed three “strategic options” for Vivendi’s future, which the company can’t pursue all at the same time and which raise the question of how to pursue them with a smart approach. “These various activities have nothing to do with one another,” Fourtou said. “Some will have to be sold to find the financial flexibility needed for the others.”
Wall Street watchers took this as a sign that one or another asset involved could be divested down the line. This could, for example, mean the end of ex-CEO Jean-Marie Messier’s foray into the global entertainment space, they said. Observers have suggested that Vivendi’s top entertainment executive, Barry Diller, could walk away with the assets if that became the case down the line.
The three options mentioned by Fourtou are: continuing to build an international media and communications group, becoming the majority shareholder in Cegetel, or reinvesting to again become the majority shareholder in Vivendi Environment.
Fourtou said he would further elaborate on likely future strategies at and after a board meeting scheduled for Sept. 25. One source close to the company said that day will see the CEO laying out a detailed vision for Vivendi.
Vivendi Environment bondholders are scheduled to vote today on whether to cut a tie to its former parent, which has reduced its investment to a minority position. The bondholders’ vote will decide whether the company can avoid repaying a U1.5 billion ($1.45 billion) exchangeable bond in case of a default by cash-poor Vivendi.
Joe Ray reported from Paris; Georg Szalai reported from New York. Bloomberg News contributed to this report.
