CEO Jean-Marie Messier's departure means the company could lose its biggest Internet cheerleader, prompting a re-examination of its VUNet division under fresh eyes.
Messier, who told French daily Le Figaro that he has resigned, has long championed the Internet as an integral part of the company's future. But he recently became embroiled in a boardroom backlash over Vivendi's plummeting stock and mountainous debt. Many of Messier's costly Net acquisitions, such as Vivendi's $372 million purchase of MP3.com, have offered questionable financial return and will likely come under heightened scrutiny once a new guard of executives grabs the reins.
Investors welcomed word of Messier's departure by boosting Vivendi's stock 4 percent to $22.45 on the New York Stock Exchange on Monday. But a debt ratings downgrade and reports of accounting improprieties sent the company's shares reeling Tuesday, as they fell $4.69, or nearly 21 percent, to close at $17.76 on the exchange. The company's stock was repeatedly halted on the Euronext exchange Tuesday before it closed down around 26 percent.
Fueling the sell-off, ratings agency Moody's cut Vivendi's debt to junk status Monday. More damaging, French newspaper Le Monde reported that Vivendi tried to add $1.35 billion (1.5 billion euros) in profits to its accounts in 2001 through sales of shares in British Sky Broadcasting.
The report added that Vivendi assigned most of its BSkyB shares to a financial institution to comply with antitrust rules, but it also accounted for the sale into its own books, giving the impression of more profit and less debt.
On Tuesday, Vivendi issued a statement explaining the procedures it took with regulators to account for the stock sale. The statement noted that the company complied with regulators in France's stock exchange commission and the U.S. Securities and Exchange Commission under accepted accounting practices.
"The SEC advised the company that it did not object to the company's treatment of the BSkyB sale under U.S. GAAP (General Accepted Accounting Principles), as presented and disclosed," the statement said.
New management, new vision?
Messier's exit will likely bring forth new management, whose mission will be to reduce the company's crippling debt, and should clear the way for a re-examination of its VUNet division.
"It would be no surprise that (Messier's successor) will be looking at these assets with a finer eye," said Michael Nathanson, an analyst at investment research firm Sanford Bernstein. "The pressure on the company is to get its balance sheet in order."
Messier had hoped that by merging his French company with U.S.-based Seagram and France's Canal+ he could build a media company to rival AOL Time Warner, with the ability to deliver movies and music over wireless connections and the Internet. However, that vision was blurred by the company's financial difficulties, and the idea of binding the company's various businesses with cyberglue has largely been scrapped.
Messier wouldn't be the first executive to leave a major media company following a big bet on convergence. AOL Time Warner CEO Gerald Levin in May stepped down for personal reasons, but not before the company witnessed its stock price plummet to historic lows as investors openly questioned Levin's wisdom in selling Time Warner to America Online at the height of the dot-com bubble. Messier and Levin both pinned the futures of their companies to new media convergence only to watch their companies stock collapse in the short term.
Reports have circulated that the board plans to replace Messier with Jean-Rene Fourtou, the vice chairman of drug company Aventis.
Vivendi in choppy waters
Questions arise about its
online media business
Coming up short
The possibility of a breakup raises questions about VUNet's future.
The unit is miniscule compared to its cousins in the Vivendi family. In the first quarter of 2002, VUNet reported revenue of $46.6 million (47 million euros) on a pro forma basis. However, the division also reported $38.6 million in earnings before interest, taxes, depreciation and amortization (EBITDA).
In the same quarter, revenue from Vivendi's film studios reached $1.1 billion, largely from the success of movies such as "The Scorpion King" and "A Beautiful Mind." And despite an overall slip in CD sales, Universal Music Group continues to be the largest record company in terms of market share.
A representative for VUNet declined to comment but noted that Vivendi's Internet operations remain business at usual.
Although analysts expect changes, some say they will be good if they allow the company to focus on its strengths. As it stands, VUNet is an assembly of many acquisitions completed shortly after Vivendi merged with Seagram and formed Vivendi Universal in 2000. The company later bought MP3.com--despite an infringement suit brought against it by the recording industry--online subscription company EMusic, online gaming sites Uproar and Flipside, sweepstakes site Iwin.com, and music editorial site GetMusic.
Focusing on a few elements rather than the entire mixture may be the vision of Vivendi's new executives, according to analysts.
"Given today's culture and climate, the premium is on discipline and doing things that are real natural extensions of your core competencies, instead of making moves that are highly speculative," said Robert Batchelder, an analyst at research firm Gartner.
Reuters contributed to this report.