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Vivendi Wants More Credit for USA

Vivendi Universal S.A. chairman Jean-Marie Messier last week told investors that while he doesn't feel the need to own a cable distribution pipe, he sure would like to get some credit for the large stake in the cable network his company already owns.

Vivendi owns about 40 percent of USA Networks Inc., acquired in its $34-billion purchase of Seagram Co. Ltd. last year. But Messier told a group of investors at last week's Goldman Sachs & Co. Communicopia conference in New York, that ownership stake is not reflected in Vivendi's stock price, because it cannot consolidate USA's results into its own.

"USA is a clear part of our strategy, it brings a lot to our strategy, but we have a problem," Messier said. "We will support any major move they want to make. We are close to a majority owner, but because of the initial agreement, we do not consolidate.

"The day we can consolidate USA, the view of our U.S. investors will change," he said. "We have to find a way to allow this consolidation some day."

Messier offered no details on how that could be done, but according to analysts it would likely take a buyout of USA chairman Barry Diller.

Diller is not eager to sell.

"They own 40 percent of USA but it's not reflected in their [stock] price," Diller said later in the day at the same conference. "Who knows? They could consolidate our revenue and it would be great for them. Whether they can do it or not depends on a series of things. We have been alert and happy buyers and reluctant sellers."

Diller added that USA's relationship with Vivendi is good and he expects no immediate changes. And he is sympathetic to the company's dilemma.

"Of course we're sympathetic," Diller said. "We have a fine relationship with Vivendi. Messier is on a great track to expand this water company he inherited. We're absolutely a part of it."

Messier, a former investment banker who assumed the top spot at Compagnie Générale des Eaux in 1996, transformed that water and electric utility into what is now Vivendi by shedding billions of dollars of assets and refocusing the company on the media and entertainment sector. While Vivendi still has utility and environmental businesses, Messier has concentrated mostly the acquisition of media assets, including educational publisher Houghton Mifflin Co. and online music service

But Vivendi has struggled to get its story out and Messier — who moved his family from Paris to New York last month — has been beating the pavement trying to sell investors on the stock.

Thus far, investor reaction to Vivendi stock has been lukewarm at best. Vivendi has dropped 30 percent since June as investors struggled to understand its amalgam of media, environmental and communications businesses.

Vivendi stock had traded as high as $75 per share in January, the month the company completed the Seagram deal. It closed at $45.16 per share on Oct. 3. Over the same timeframe, USA stock had traded as high as $28 per share in July; it closed at $19.88 per share on Oct. 3.

Making matters worse are reporting requirements that have offered investors a jumble of quarterly financial numbers that don't always provide all the necessary details in one place. In its last financial report, Vivendi offered only first-half revenue and cash-flow numbers for its media operations. Messier said that will be cleared up once Vivendi begins reporting its financial numbers according to Generally Accepted Accounting Principles, the U.S. financial accounting standard — a move expected next year.

Speculation that Vivendi was interested in buying Liberty Media Corp.'s 21-percent stake in USA Networks has been circulating for months. Whether Liberty will sell, though, is another story.

Liberty Media president Dob Bennett said that he has had discussions with Messier and Vivendi concerning its USA investment, but no deal is currently in the works.

"We've been partners with Barry [Diller] for many years," Bennett said. "We've made a lot of money with him."

While gaining control of USA would be a tough road, Messier said speculation that the French media conglomerate is looking to buy U.S. cable distribution is untrue.

Instead, he said, the company would prefer to forge strategic partnerships with distribution companies.

"We don't need to own 100 percent distribution," Messier said. "We're not going to buy DirecTV [Inc.] or AT&T [Broadband]. We look to form strategic partnerships based on new offerings, new channels and interactive services."

Through its Canal Plus division, Vivendi already is a major owner of distribution in Europe. Canal Plus has about 15.5 million subscribers in Europe and expects to increase that number to 16.5 million customers by year's end. About half of those subscribers will be digital cable customers, he said. Canal Plus now has about 5.8 million digital subscribers.