VU shares drop amid uncertainty
May 31, 2002 - The Hollywood Reporter
Shares of media conglomerate Vivendi Universal fell sharply Thursday because of investor disappointment that a closely watched board meeting, which ended in New York late Wednesday, did not produce many concrete results, analysts said.
The only specific measure out of the meeting was the creation of a corporate governance committee to support and oversee management, including chairman and CEO Jean-Marie Messier. Beyond that, Vivendi Uni confirmed its focus on reducing its 17 billion euros ($15.9 billion) of debt and growing internally.
“People had hoped that Messier would leave or that the company would announce certain asset sales to reduce debt, but then the whole thing turned out to be a big yawn,” Sanford C. Bernstein analyst Michael Nathanson said.
Investor confidence may also have been shaken by the appointment of Vivendi Uni vice chairman Edgar Bronfman Jr., the firm’s largest individual investor, as co-chair of the new governance committee.
Bronfman may have known about this eventual return to Vivendi Uni prominence around the time he stepped down from his executive duties in December, a French newspaper reported Thursday. This allowed him to cash in on a $17.6 million golden parachute, then pick up the reigns of the governance committee just a few months later, the report said.
In New York, Vivendi Uni’s American depositary shares closed down 5.5% on Thursday at 29.82. Similarly, trading of Vivendi Uni in Paris left French investors looking unconvinced as the stock ended at 32.02 euros, down 5%.
Positive comments from credit agency Standard & Poor’s and market talk of an impending sale of Italian pay TV platform Telepiu to competitor News Corp. for about $1 billion did little to reverse the downward trend.
S&P withdrew Vivendi Uni from a list of companies that have high liquidity risk because of ratings triggers in their credit arrangements. Early this month, S&P said Vivendi Uni could face a cash crunch because its ability to get cash from bank lenders was tight due to its credit ratings, which have been under pressure because of a ballooning debt pile. At that time, S&P warned that Vivendi Uni could have to repay 5.3 billion euros ($5 billion) if its ratings were cut.
But after renegotiating some credit lines and selling its stake in British Sky Broadcasting, Vivendi Uni now would have to repay only 300 million euros ($281 million) in the event of a downgrade, S&P said. “This amount is minor,” said Guy Deslondes, a director in S&P’s Milan office.
In a statement on its Web site, Vivendi Uni on Thursday confirmed “having obtained agreement from the banks to delete the clauses that linked the availability of credit lines to a rating level.” The company added that it is seeking to improve its S&P credit rating to BBB/stable from BBB/negative, and its Moody’s rating to Baa2 from Baa3.
Vivendi Uni also gave an update on its available credit lines, calling its cash situation “comfortable.” After paying a dividend and acquiring the entertainment assets of USA Networks, the company said its credit lines “amount to almost 3.5 billion euros ($3.3 billion), its recourse to commercial paper is limited to about 1 billion euros ($940 million) and the reimbursement of debts expected during the coming months is limited.”
Meanwhile, after Wednesday’s board meeting in New York, company observers in Paris were trying to get their arms around the effects of the meeting. French investors were left with a sense of the vehicle Vivendi Uni will use, but they still don’t know where it’s going or how it will drive the company out of debt specifically, observers said.
Officials at Vivendi Uni’s satellite TV unit Canal Plus declined comment on what the meeting meant for their company. Messier has said he wants to make Canal Plus profitable within two years.
The French government, meanwhile, is concerned with the potential loss of French control over utility arm Vivendi Environment as Vivendi Uni is considering reducing its stake from 63% to less than 50% to cut debt. French President Jacques Chirac recently spoke with Messier, stressing the need for Vivendi Environment to stay in the hands of French investors.
French law is also working to protect Canal Plus. Culture and Communication Minister Jean-Jacques Aillagon is fighting to make sure that what the French call the “encrypted channel” stays in the hands of a French majority.
Georg Szalai reported from New York; Joe Ray reported from Paris.
