Vivendi

Slide 1

PROFILE Vivendi is a mass media company established in 2000.

Vivendi SA is a French multinational mass media company headquartered in Paris, France.

The company has activities in music, television and film.

VIVENDI HEADQUARTERS

VIVENDI CEO: VINCENT BOLLORE

HISTORY Vivendi Universal was originally founded in 1853 as a utility company under the name Compagnie Gnrale des Eaux (CGE) by an imperial decree of Napoleon III. In 1854, CGE obtained a concession in order to supply water to the public inLyon, serving in that capacity for over a hundred years. In 1861, it obtained a 50-year concession with the City of Paris.

VIVENDIS ORIGIN

In 1983, CGE helped found CANAL +, the first Pay-TV channel in France and in the 1990s, they began expanding into telecommunications andmass media, especially afterJean-Marie MessiersucceededGuy Dejouanyon June 27, 1996.

In 1996, CGE created Cegetel to take advantage of the 1998 deregulation of the French telecommunications market, accelerating the move into the media sector which would culminate in the 2000 demerger into Vivendi Universal and Vivendi Environment.

In 1998, Compagnie Gnrale des Eaux changed its name toVivendi, and sold off its property and construction divisions the following year to what would becomeVINCI.

CHANGE OF NAMES. CHANGE IN FOCUS.

Universal Entertainment$34 BillionPathUS$2.59 billionMaroc Telecom $2 BillionHavas6 billionCendant SofwareAnayaNetholdMp3.com$372 millionHoughton Mifflin Harcourt$2.2 billionVIVENDIS ACQUISITIONS

DISCOVERY OF THE SCAM In late 2001 the companys CFO and several other executives exercised Vivendi options, one week before the sale of 3.3 billion of stock (which diluted other shareholders and drove the share price down), this prompted the establishment of an investigative committee.

The firm also sent confusing signals to the marketplace which made it appear tentative and unfocused in September 2001 it announced its intention of canceling 3 percent of outstanding shares through a repurchase (which temporarily boosted the stock price), but never did so.

As the company entered 2002, its liquidity position grew increasingly precarious and the specter of default appeared greater than ever. Indeed, the leverage that was straining liquid resources was so significant that the rating agencies finally downgraded the credit to junk levels (for example Moodys cut Vivendi five rating grades, to B1, in less than one year).

In June 2002, as the company scrambled for more liquidity, it sold a 13 percent stake in Vivendi Environnement to Deutsche Bank in exchange for a US$1.3 billion loan.In July 2002, a minority shareholders association filed a suit against Vivendi accusing it of concealing financial information

PEOPLE INVOLVED AND COURT RULINGS

Jean Marie MessierCEO

Edgar Bronfman Jr.Seagrams Ex-Chief

Guillaume HannezoCFO

US COURT RULINGS:

Jean-Marie Messier and Edgar Bronfman Jr. paid fines instead of going to jail for criminal charges related to Vivendi SAs near-bankruptcy after a $77 billion acquisition spree while they led the company.

Messier was fined 150,000 euros ($200,000) and Bronfman 5 million euros by a three-judge panel. Neither was sentenced to jail time. Messier, 54, was found guilty of misleading investors during his tenure as Vivendis chief executive officer. Bronfman, also 54, was found to have traded on inside information while vice chairman.

The conviction diverges from a civil jury verdict in a New York shareholder class-action lawsuit last January. That ruling cleared Messier and former chief financial officer Guillaume Hannezo of misleading investors and held the company solely responsible for the conduct.

FRANCE COURT RULINGS: Vivendi and Messier were fined by Frances financial markets regulator in 2004 for misleading investors, penalties the Paris appeals court slashed in 2009. Vivendi paid a $50 million fine and Messier gave up a $25 million severance package to settle similar allegations by the U.S. Securities and Exchange Commission the year earlier.

Messier received a three-year suspended sentence and Bronfman a 15-month suspended sentence at the hearing. Hannezo, who was also a defendant, was fined 850,000 euros and received a 15-month suspended sentence for misleading investors and insider trading.

Messier nearly bankrupted Vivendi, buying 23 businesses to transform the water utility founded in the 1800s into a multimedia conglomerate. At the end of his tenure, it owned the worlds largest music company and video-game maker, as well as pay-television and telecommunications operations

Vivendi agreed in 2003 to pay $50 million to settle U.S. Securities and Exchange Commission accusations of civil fraud, and Jean-Marie Messier, the companys former chief executive officer, agreed to pay a $1 million fine.

PERSONS INVOLVED

REASONS FOR DOWNFALL

Heavy Debts to Finance AcquisitionsVivendi had grown entirely through acquisitions. Messier spent Euro 600 billion in 2000-01 for that. Due to numerous acquisitions there was a huge accumulation of debts.

Sources of finance : Bank borrowings, issue of bonds convertible into common shares for paying those acquisitions.

When the share prices began to fall toward the end of 2001 following dot com bubble burst, Vivendi piled up huge losses and faced severe cash flow problems.

60% fall in the share price of the company in March 2002.

Vivendi off-loaded some stakes in the market including 15% sale of stake to Deutsche Bank. The liquidity crunch in Vivendi sent a shocking wave in the market.

Misleading InformationMessier tried to cover up the fact of huge losses and debts by issuing press releases portraying: Cash flows as excellent, Operating earnings (EBITDA) better than the projections and ahead of the targets.

The press releases of the first, second and third quarter of 2002 presented a materially misleading picture of the financial condition of Vivendi. In May 2002, Vivendi was talking about comfortable cash situation an manageable debts.

In July 2002 Vivendi admitted loss of Euro 13.6 billion for 2001 and accumulated debts of Euro 37 billion.

Role of Credit Rating AgenciesMoodys Investors Services and S&P did not downgrade the credit rating of Vivendi in December 2001 in spite of huge losses and mountainous debts. It ostensibly believed the assurance from the Vivendi management that it would reduce debts in the year 2002.

REASONS FOR FAILURE & GOVERNANCE FLAWS

Poor DiversificationVivendi diversified from water company to media and communication company with lot of acquisition after 1980s. Heavy expansion caused company both financial and legal problems due to the decaying value of acquisitions.

General corporate strategies were confused and sometimes contradictory; the firm held various assets that were unrelated to its supposed media/communications focus.

The CEO guided the company through a series of expensive acquisitions, adding significant leverage and jeopardizing the firms financial future along the way. The company funded most acquisitions with debt and routinely overpaid for the assets it purchased.

Improper Accounting

Improper adjusting various reserve accounts and violating US GAAP. The company increasing its EBIT by adjusting wrong transactions.

The company attempted to improve its financial appearance by incorporating gain on sale accounting of a subsidiary, in contravention of established rules. It also tried to convince investors that its leverage was better than it actually was by including all the operating earnings of minority-owned subsidiaries. It also seems to have engaged in other inappropriate accounting practices, the subject of official investigation

Ineffective BoardBODs didnt question the strategies of management and there was in balance in the board.

The board was composed of CEO-friendly directors who failed to question managements strategy and use of leverage in recasting the company; they were also extremely slow to act to oust the CEO when it was already clear that the firm was in financial distress

Audit Committee Failures

CFO used creative accounting to show a positive gross profit margin. Did by taking into consideration the totality of SFR (the mobile phone affiliate of Vivendi-Universal) results in Vivendi-Universals balance sheet, whereas Vivendi-Universal only owned 44% of SFR at this time. However, this was not illegal and did not affect the bottom line, which only took in consideration the 44% owned. The audit committee should have warned the shareholders and the board of this practice (Cotton, 2003).

The audit committee should also have warned the board, and through the annual reports, the shareholders of the risks associated with said practices. It is difficult to argue that the audit committee influenced the decision to follow the new American accounting rules, which were primarily taken in the light of the recent internationalisation of Vivendi-Universal. American accounting rules require companies to include the current value of all acquisitions into their accounts.

A first warning was made in 2001, with a record loss of 13.6 billion. During the same time, the market value kept falling.

Dominating CEOCEO of the company dominating in behaviour and started irrational and risky series of company. Messier took over 30 companies which lead to 100 billion euro debt.

Most of the board appears to have supported the strategic expansion throughout the multi-year period; only when liquidity was severely strained and the firms future was in doubt did board loyalists take action to force the CEOs resignation

Other Failures

Overall financial management and control was weak: the firm assumed far too much debt in pursuing its goals, spent excessively on both assets and expenses, and put its liquidity at risk

Certain executive managers appear to have exercised options for personal gain ahead of market sensitive news (for example, the sale of stock)

The compensation payable to the CEO towards the end of his tenure was unreasonable given the collapse of the stock price and the large operating write-offs the firm was forced to take. Use of top line revenue as a performance goal was not effective in aligning pay for performance directives

Corporate Governance Changes [France]The Vivendi-Universal experience has definitely modified the panorama of corporate governance and the role of audit committees in France.

The Financial Security Law (LSF 2003) consecrated the separation of audit and board functions, similarly as the separation of powers, a principle established by Montesquieu during the 18th century (De lesprit des lois, 1748). This principle obviously aims to avoid any conflicts of interest that could arise. For example, the same group of people should not carry out auditing and consulting. This is to preserve the independence and objectivity that is required

The audit committees, constituted by a majority of independent directors, now take their role seriously and try to be more effective. (Charkam, 2005)In theory, they are supposed to meet one day before the board closes the accounts. They propose the names of the auditors, establish the accounts and approve any additional tasks given to the auditors. Above all, they must give their opinions to the board.

Each company can implement particular norms and policies as long as it does not affect the established principles of governance. For instance, a company can mention in its status that a director cannot belong to more than 5 different boards. It has also been required, since the Vivendi-Universal case, that corporations give more details about the off-balance-sheet commitments. Following the same trend, shareholders try to limit the access to the board of people coming from the same family amongst the major shareholders.

its chairman and CEO JEAN-MARIE messier was forced to resign and was subsequently replaced by JEAN-RENE FOURTOU.Messier was found guilty of embezzlement in 2011.The company paid over US$20 million to Messier as part of his severance package. The company began to reorganize to stave off bankruptcy. It announced a strategy to sell non-strategic assets and reduced its stake in Vivendi Environment to 40% and sold its stake in Vinci ConstructionAFTERMATH

Thank you.