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Vivendi's Precarious Future - 2002-07-08

Stock markets around the world were shaken last week by the ailing fortunes of yet another multi-national conglomerate. The company was the French-based powerhouse, Vivendi Universal, the world's second-largest media giant.

The news sounded eerily familiar. Yet another corporate giant had spent too much, been too ambitious and, according to some reports, may have unsuccessfully tried to alter its accounting books. The latest financial scandal does not involve an American company like Enron or WorldCom, but rather Vivendi Universal, an international group founded and based in France, and headed by a French president.

One year ago, Vivendi was considered a success story, after its president, Jean-Marie Messier, expanded the former French water company into an international media and telecommunications group. Today, Vivendi also includes North America's Universal Studios, as well as interests in Cegetel mobile phone company and Vivendi environment.

Mr. Messier was seen as France's golden boy, able to succeed in North America as well as Europe. But Vivendi is saddled with a multi-billion dollar debt and plummeting stock prices. And last Tuesday, a largely discredited Mr. Messier announced his resignation as Vivendi's president.

The head of the business department at the American University of Paris, Ali Fatemi, says what happened to Vivendi could happen to any large, and overly ambitious company. "A company like Vivendi is a good example to show that no longer can we speak of the United States, France, Europe," he said. "We are talking about a globalized economy. Vivendi is as much an American company after the purchase of Universal Studios as a French [one]."

More bad news hit Friday with reports that a French union, Force Ouvriere, might pursue judicial action against Vivendi. In an earlier interview on French radio, union spokesman Marc Blondel strongly criticized Mr. Messier.

Mr. Blondel said Mr. Messier had abused workers confidence, and misrepresented the company as being in good health. He is particularly angry about reports Mr. Messier negotiated a multi-million dollar severance package.

Vivendi's new president, picked last week by the group's French and North American board, is 63-year-old French businessman, Jean-Rene Fourtou. Mr. Fourtou is well respected in the financial world, with a reputation for turning ailing companies around. He says he is upbeat about Vivendi's future, but makes no promises.

Mr. Fourtou said in an interview on Europe One radio that Vivendi faces a short-term cash crisis. But he said he is confident in the company's long-term future.

Mr. Fourtou has promised to deliver a financial plan for the company by September. He has named a powerful French businessman, Claude Bebear, to the company's board of directors. Two major French banks, which may offer Vivendi short-term loans, have expressed confidence in the company.

But many concerns remain. Analysts predict Vivendi's board will decide to sell off some of its companies to pay its debt.

Critics fear the French pay TV channel, Canal Plus, may be the first to go. Others, including the new French government, are worried France will lose some of its so-called "cultural patrimony" if Vivendi's Universal groups sell their interests in French movies, music and press.

Analysts like American University's Fatemi fear the possibility of other financial scandals that might cause investors to lose confidence in the stock market. "Now we are in a very sensitive stage in the world economy," he said. "Because if we have a few more cases such as what has happened with the Enron, and now with this Vivendi, if the confidence in the stock market is lost, then what will happen is people will spend less."

Mr. Fatemi says a drop in consumer spending could stall economic growth, and even trigger a global recession.

Vivendi's problems, along with the Enron and WorldCom scandals, have also prompted new calls for more open and rigid accounting practices, not only in the United States, but in France and other countries in Europe as well.