The Hindu : The Vivendi debacle

Online edition of India's National Newspaper
Wednesday, Jul 17, 2002

Opinion

Opinion - Leader Page Articles

The Vivendi debacle

By Vaiju Naravane

The upshot is likely to be a return to the interventionist model and the old, staid corporate policies, reinforcing France's traditional suspicion of Anglo-Saxon-style liberal capitalism.

JEAN-MARIE Messier, the 45-year-old flamboyant and very visible Chief Executive Officer of Vivendi Universal, the world's second-largest (for the time being) media and communications conglomerate, was ungraciously ousted recently. Finally, when push came to shove, it was his own breed that kicked him out. Mr. Messier, who had dared to defy France's politico-corporate establishment, thumbed his nose at "accepted" behaviour, flouted every rule in the book, mocked at some of France's most dearly held beliefs, had the rug jerked from under him when French business leaders on the board of Vivendi Universal gave him the thumbs down signal. It took just six months for the intrepid Frenchman, once nicknamed Master of the World (the title of his rather self-obsessed autobiography) to fall with a thud. So, what went wrong?

It is true that Vivendi Universal ratcheted up a colossal debt estimated at upwards of $ 33 billions and the group has severe cash-flow problems. Vivendi shares have been in a state of free fall for most of the past year, losing up to 70 per cent of their value. As news of his imminent departure spread, the credit rating agency Moody's downgraded it debt to junk status setting off panic selling on major markets, making the shares plummet even further. The VU share that once traded for over $ 70 sold for less than $ 14 dollars on July 3.

With a change of management and a spanking new board made up of business and political heavyweights such as Claude Bebear, chairman of the Axa insurance group or Henri Lachmann who heads the giant Schneider Electric, investor confidence appears to be returning. The future of Vivendi Universal as a single conglomerate straddling diverse fields with huge media interests however remains uncertain. It is likely that the company will be broken up, with asset sales to reduce the debt burden.

With markets jumpy and volatile, fluctuating share prices and liquidity problems linked to huge debt re-payments do not in themselves make an unusual story. Vivendi is not alone among large communications companies facing cash-flow problems. France Telecom has run up a $ 70-billion debt, twice that of Vivendi, and has opted for investment policies that have proved shaky at best. And although there is some concern and cautious talk of re-nationalisation, there are no heads on the block ready to roll, no chronicle of a death foretold.

What is so out of the ordinary is the way in which Mr. Messier was dropped and the politico-corporate manoeuvring that accompanied his ouster. The upper echelons of French politics, banking, industry, finance and Government make up a closed, cosy club. It represents the best and the brightest, most members being products of the country's elite schools of engineering, management or administration. There are about 40 prominent names, most of whom hold high office in Government or lead blue chip companies, banks, insurance houses or state-run enterprises. Each of them also serves on the Boards of four or five other French companies, making up an inter-connected insider web that jealously guards their own and French interests while keeping everyone in line.

Mr. Messier was no stranger here. The son of a provincial accountant, he was a brilliant student who shone at the prestigious Ecole nationale d'administration, a must for would-be diplomats and civil servants. He entered the French civil service to become the chief of staff at the French finance directorate. Barely 32, he became the youngest partner ever in the history of the Lazard Freres Bank before taking over as the head of the water and sewage utility Compagnie Generale des Eaux in 1996.

In his six-year reign there, Jean-Marie Messier went on an aggressive buying and re-structuring spree, branching out into technologies of the future, into telecom and entertainment, renaming the staid water utility company, to transform it, with the acquisition of Universal Studios, into Vivendi Universal, the world's second-largest media conglomerate. It held a dominant position in Hollywood and the music industry, besides owning several newspapers, magazines and TV channels.

In the process, Mr. Messier also lost his head. Fascinated by the American way of life, determined to conquer and seduce the U.S., he moved to New York adopting a flamboyant, jet-set, celebrity lifestyle. In doing so, he also turned his back on many of the attitudes and tenets that form the bedrock of French politico-corporate life. French industrialists have a close relationship with the state. Immediately after World War II, the state took over many large companies and although most of these are now privatised, the politico-corporate nexus continues. Many times in the past the Government has stepped in to bail out large companies considered "national treasures" to prevent them from falling into foreign hands. That has now diminished because the European Commission in Brussels keeps a watchful eye on state subsidies that could jeopardise healthy competition.

One of the concepts dear to the French heart is that of the "cultural exception". Culture, they argue, cannot be subject to the vagaries of the marketplace. By law French TV channels are obliged to co-finance the production of films, effectively subsidising an otherwise ailing film industry. Mr. Messier's declaration that "the French cultural exception is dead" sent shock waves through the French establishment. His sacking of Pierre Lescure, chief of Vivendi Universal's Canal Plus, Europe's largest pay TV channel which was also the loss-making financer of half of France's film production, generated enormous resentment. Clearly, Mr. Messier was guilty of lese majeste.

Only one other French business leader has dared to take on America in the same way. Mr. Bebear took over Equitable Cos in 1991 to found one of the biggest insurance conglomerates in the world. Axa now rivals Germany's Allianz AG or the American International Group in terms of market share, financial health and sheer clout.

Mr. Bebear however never lost sight of investor interest or the principle of corporate governance. When reports circulated that Mr. Messier was guilty not just of brashness and vanity bordering on megalomania, but also of cooking the books, Mr. Bebear became his most severe critic.

It has been rumoured that the French President, Jacques Chirac, himself had a hand in Mr. Messier's downfall, asking powerful board members to ease him out. His close adviser, Jerome Monod, former boss of the rival water utility Lyonnaise des Eaux that became the powerful Groupe Indo-Suez, reportedly went for his jugular. The rest is history. Mr. Messier resigned, but not before negotiating a 17.8 million euro severance package.

The upshot of the Messier caper is likely to be a return to the interventionist model and the old, staid corporate policies, reinforcing France's traditional suspicion of Anglo-Saxon-style liberal capitalism.

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