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PROFILE

Vivendi is a mass
media company
established in 2000.
Vivendi SA is a French
multinational mass
media company
headquartered in Paris,
France.

VIVENDI
HEADQUARTERS

The company has


activities in music,
television and film.
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 afterJeanMarie 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.

HANGE OF NAMES. CHANGE IN FOCU

IVENDIS ACQUISITIONS
Anaya

Cendan
t
Sofware

Path
US$2.59
billion

Nethold

Houghton
Mifflin
Harcourt
$2.2 billion

Universal
Entertainment
$34 Billion

Havas
6 billion

Mp3.co
m
$372
million

Maroc
Telecom
$2 Billion

ISCOVERY 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

PEOPLE INVOLVED
AND
COURT RULINGS

Jean Marie Messier


Edgar Bronfman Jr.
CEO
Seagrams ExChief

Guillaume
Hannezo
CFO

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

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

PERSONS INVOLVED

REASONS FOR
DOWNFALL

eavy Debts to Finance Acquisition


Vivendi 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

Misleading Information
Messier 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


Agencies
Moodys 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 &
GOVERNA
NCE

Poor Diversification
Vivendi 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

Improper
Improper
adjusting various reserve
Accounting
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 minorityowned subsidiaries. It also seems to have

Ineffective Board
BODs 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
CFO used creative accounting to show a positive gross profit
Failures
margin. Did by taking into consideration the totality of SFR (the
mobile phone affiliate of Vivendi-Universal) results in VivendiUniversals 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.

Dominating CEO
CEO 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 multiyear 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


The Vivendi-Universal experience has definitely modified the
[France]
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

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.

AFTERMATH

its chairman and CEO JEAN-MARIE messier was forced


to resign and was subsequently replaced by JEANRENE 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 nonstrategic assets and reduced its stake in Vivendi
Environment to 40% and sold its stake in Vinci
Construction

Thank you.