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Sunday, August 18, 2002


Unfortunately, when things go up too much, they have a nasty tendency to come down too hard. This is the current situation of Vivendi. Of course it is an easy matter to poke fun at the likes of Jean Marie Messier, theatrical and exaggerated, you could say he got his well deserved come-uppance. But what about the thousands of people who earn their livelihood in one of Vivendi's subsidiaries. And what of all the other global media companies AOL Time Warner, Bertellesman etc. It's hard to put all of this down to individual human error. The there is the Telecom sector, again the problem is generalized, so in all the fuss about who did what in the great accounting scandal it's important not to miss the point that there are underlying economic causes for all this debacle, and that those who were all too recently cheering on Schumpeter's creative destruction at work try now to understand the double edged nature of this process. That globalization has lead to increasing poverty in some parts of the world is not in doubt (although as I repeatedly emphasis this is not the total situation) and has often been commented on. Now we can see that these processes can at the same time, by the sheer fact that they move enormous forces, lead to tremendous instability in the most favoured parts of the planet. So we can see that learning to live with globalization and it's its consequences (many of them, of course tremendously beneficial) is going to be a challenge for all of us.

So at least spare a thought for all the men in grey who are now being called in to try to straighten things out. Of course they are well paid, but little in their previous careers could have prepared them for this. Vivendi, for example, appears to be in total rout. A company which was never worth the global value it was assigned, is now worth far more than the takings which will be achieved by selling off the parts at current prices.

According to the Financial Times:

Vivendi Universal, the debt-burdened French media group, is considering a possible demerger and initial public offering of its US entertainment assets dominated by Universal Studios.The option - one of several likely to be presented to the Vivendi Universal board on September 25 - would mark a significant retreat from the creation of a global media and entertainment group by Jean-Marie Messier, who was ousted as Vivendi chairman last month.

Details of a possible demerger coincided with a 12.3 per cent fall in Vivendi Universal's share price on Friday. The shares closed at €9.30 in Paris, valuing the company at €10.1bn ($9.89bn), compared with a market capitalisation of €87.9bn at the peak in January last year.The share decline followed further analyst downgrades, including one by Deutsche Bank, one of Vivendi Universal's main lenders. Deutsche warned: "It is impossible to present a buy recommendation on a stock which is capable of being declared insolvent within two months."

Jean-René Fourtou, Vivendi chairman, this week admitted the group was facing a liquidity problem after announcing a €12.3bn first half loss. He said the group would cut borrowings through a mixture of disposals, improved cash management and lower overheads.


Even worse the money may run out soon if a fix isn't put together quickly:

Vivendi Universal's future is in the hands of its banks. Without their support, the world's second-largest media group will run out of cash within weeks.
The company has stressed it is close to signing a deal with seven banks led by BNP Paribas, Deutsche Bank and Société Générale, for €3bn ($2.95bn) of funding, which will provide €2bn of new funds and replace a €1bn loan obtained from these banks in July. If it does not sign the deal this month, there is a serious threat it may default on financial obligations.

The release of the company's half-year results on Wednesday showed significantly lower-than-expected cashflow generation forecasts for the second half of the year, meaning that a financing gap is looming within weeks. Vivendi Universal has €600m of cash remaining and an unused €1bn loan.The company said it had €300m of debt due this month, €400m in October and €100m in December, as well as a $1.6bn (€1.63bn) bridge loan maturing in November.
Source: Financial Times

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