Vivendi exec shuffle raises Net questions
Published: 02 Jul 2002 08:25 BST
Reports on Monday that Jean-Marie Messier is stepping down from his post as Vivendi Universal's chief executive cast a shadow over the future of the French media conglomerate's Internet unit.
Messier, who has been embroiled in a boardroom backlash over Vivendi's plummeting stock and mountainous debt, has long championed the Internet as an integral part of the company's future. But many of Messier's costly Net acquisitions, such as Vivendi's $372m (£252m) 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.
Following reports of an executive shift Monday, Vivendi's American depositary receipts closed up more than 4 percent at $22.45 on the New York Stock Exchange.
Should the company's biggest Internet cheerleader depart, it would clear the way for a re-examination of its VUNet division under fresh eyes.
"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 US-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 cyber glue 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 chief executive 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.
By many accounts, Messier's day in the spotlight is over. On Monday, France's Le Monde reported that the executive, under pressure from dissenting factions in Vivendi's board of directors, has agreed to resign from the company. Other publications reported that the board plans to replace Messier with Jean-Rene Fourtou, the vice chairman of drug company Aventis.
Meanwhile, a proposal to split up the company has come from members of Vivendi's board -- a charge led by the Bronfman family, which sold beverage maker Seagram and entertainment assets such as Universal Pictures to Messier. Speculation has been rife about what splitting Vivendi could mean for the entertainment world. Some reports speculate that USA Interactive chief executive Barry Diller, who sold his entertainment assets to Vivendi, could take a more prominent role in running the Universal film studio.
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 $46.6m (47m euros, or about £31.7m) on a pro forma basis. However, the division also reported $38.6m in earnings before interest, taxes, depreciation and amortisation (EBITDA).
In the same quarter, revenue from Vivendi's film studios reached $1.1bn, 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 are conducting 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.
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