Vivendi's Real Problem: France
Vivendi's boardroom soap opera reached a crescendo on Monday evening, as tearful CEO villain Jean-Marie Messier resigned to directors who'd been hounding him for months. (Though don't cry for him, Paris: He's got a $20 million parachute, according toLe Monde.)
Back in the spring, Messier's detractors predicted a stock boost of up to 40 percent if he left. The opposite has happened: The stock dropped 25 percent yesterday after a rare trading suspension and fell 22 percent today. Moody's downgraded the company's bonds to junk status, and reports swirl that an accounting scandal looms.
Vivendi named a new boss today, pharmaceutical executive Jean-René Fourtou (apparently the major job requirement for the Vivendi CEO is being named Jean-something). But there's little reason to believe Fourtou can pull the water/entertainment conglomerate out of the merde. In the United States, Vivendi's troubles seem distinctly American: It overpaid for various mediocre media properties, notably Universal. But what's being overlooked is how much Vivendi's problems stem from being French. Nearly 50 percent of its revenue comes from the French market, which makes it vulnerable to developments inside France—a malady that does not affect fellow media giants like AOL Time Warner or Viacom.
The French ruling class is happy to see Messier go: This week's developments are being hailed as a triumph of a "French way" of capitalism over Messier's dreaded American style. In fact, it is the French way that is so devastating for Vivendi.
Yes, Messier vastly overspent to acquire media properties that never synergized. But wherever he tried to reduce debt, he found himself hemmed in by a constrictive web of cultural and political protectionism. For example, Vivendi's American media properties are in reasonably good shape compared to domestic cable and film giant Canal Plus, which has amassed massive debt (5 billion euros) and last year lost subscribers for the first time in 17 years. Yet Canal Plus is compelled to subsidize the French film industry to the tune of some $200 million a year, a ridiculous waste. But those expenses are locked in for years—part of the political bargain Messier had to make to take control of Canal Plus. (The French establishment has had it in for Messier ever since he canned Pierre Lescure as head of Canal Plus, despite Messier's legitimate business reasons for dumping him.)
Vivendi is also consistently under French pressure not to allow the company to fall into non-French hands. Messier was pushed not to sell off the 44 percent of telecom provider Cegetel that Vivendi owns, to keep a vital industry under French control. Now the conservative French government is anxious not to let a foreigner own a major utility like Vivendi. This vastly limits the pool of potential buyers. Vivendi has enormous debt—$17 billion just for the entertainment division—and analysts suggest that the company must break up to survive. But French protectionism will drive down the value of its various divisions, which will be sold at fire-sale prices. The French can boast all they want about their unique approach to capitalism, but it looks like a recipe for stagnation. Plus ça change …