Universal strategy or confusion?

29th July 2003, Comments 0 comments

France's Vivendi Universal, the world's second-largest media group, has begun trimming the huge debt it formed under disgraced ex-boss Jean-Marie Messier. But analysts suggest it doesn't yet know where it's going.

Faced with debts of EUR 35 billion (USD 37 billion) in June last year — including EUR 19 billion from the media and telecoms division alone — Vivendi Universal has set itself the target of reducing its debt by EUR 16 billion by the end of 2004.

To achieve this task, the new management team under chief executive Jean-René Fourtou has been quick to set about selling some of Vivendi Universal's diverse assets — from its art collection to a great chunk of its utilities business, Vivendi Environnement.

But investors are now wondering what kind of company will eventually emerge from the shake-up.

"Today there is no strategy at Vivendi Universal but there is an objective — reduce the debt. The group's future as an entity called Vivendi Universal is in question," according to Julien Batteau, financial analyst at brokers Richelieu Finance.

Over the last few months, Vivendi Universal has sold EUR 7 billion-worth of assets, mainly in publishing, in the French press and of some television assets. They include US educational publisher Houghton Mifflin, sold for EUR 1.7 billion.

The company is due to auction off its coveted art collection, including works by Picasso and Rodin, for around EUR 14 million.

Now it is to close its Hong Kong office, which is responsible for developing the group's activities in the Asia Pacific region, having invested in an amusement park project in Shanghai last year.

As it stands today, the group is still active in the telecoms sector through French operator Cegetel; in cinema through Universal Pictures, Universal Studios and StudioCanal; in television though Universal Television and Canal Plus; in the music business through Universal Music; in video games through Vivendi Universal Games and in amusement parks.

But while progress in reducing debt has been made, the strategy remains unclear.

Last September, Fourtou announced he wanted to build a business centred on "creativity and entertainment", balanced between Europe and North America. But then, in December, he left all possibilities open again, saying that while there was no strategy "to dimantle VU", there was "no reason" to keep the entertainment side of the business in the long term.

He also said there was no reason in the long run to keep telecoms operator Cegetel — yet at the same time as the company announced it was increasing its stake in Cegetel to 70 percent.

Vivendi's efforts to please its shareholders by shaving debts have also been hampered by public debate in France over how the company's assets should be disposed of, analysts say.

Foreign ownership of everything from municipal sewage treatment to cultural assets like pay-TV channel Canal Plus causes national concern, according to analysts.

In February, Fourtou confirmed Canal Plus was not for sale and would not be floated on the stock exchange.

The French government gave Vivendi Universal a helping hand by assembling a group of investors to buy the group's 40.8-percent share in Vivendi Environment for EUR 1.86 billion.

But in the meantime the company has acquired new debt by increasing its stake in Cegetel. Its controversial and expensive efforts to take control of the cash-rich telecoms operator seem to have paid off in the short term but the company has given no indications of what might happen in future.

Vivendi announced Cegetel sales had increased 11 percent to EUR 7.1 billion in 2002. Overall turnover for Vivendi Universal in 2002 rose six percent to EUR 61 billion last year — but the company has made no forecasts for 2003 results, and few will place bets just now.

March 2003


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