Vivendi Universal CEO Showing Shareholders an Unclear Picture

Vivendi Universal Chief Executive Jean-Rene Fourtou can expect Tuesday to face a tough crowd of long-suffering shareholders, who have grown increasingly impatient over the French conglomerate’s depressed stock and uncertain direction -- especially when it comes to its operations in Hollywood.

Vivendi’s shareholders, who are gathering in Paris for the company’s annual meeting, have had little to cheer about in the last year.

Once the pride of French capitalism, Vivendi posted a record $25.5-billion loss in 2002. Its stock price has barely budged since Vivendi hired Fourtou last summer to turn around the struggling entertainment giant. Shares have been trading in the $15 range, down 60% from a year and a half ago.

Fourtou has won plaudits from investors for slashing Vivendi’s debts from more than $30 billion to about $18 billion and for negotiating new loans to escape a liquidity crisis.

Still, there is growing unrest among investors and analysts on both sides of the Atlantic over the slow pace of negotiations to sell the company’s U.S. entertainment assets.

“People just want to know where this is going,” said analyst Michael Nathanson of Sanford C. Bernstein in New York. “Most of my clients can’t invest in it because they just don’t know what Vivendi is going to look like. There’s too much uncertainty.”

Adding to the uncertainty are a barrage of lawsuits and investigations into whether Vivendi, under former CEO Jean-Marie Messier, misled investors last year about the severity of the company’s financial problems.

This month, one of the company’s major shareholders, Liberty Media Corp., accused Vivendi in a lawsuit of lying about its condition to cement a stock swap between companies last year. The stock exchange helped create Vivendi Universal Entertainment, combining Universal’s movie studio and theme parks with USA Networks’ film studio and cable channels. Vivendi has disparaged the suit as a negotiating ploy by Liberty, which has expressed interest in buying some of Universal’s entertainment properties.

Investor anger boiled over two weeks ago, when a French minority shareholder group called for an inquiry into Messier’s stock holdings during his tenure at the company. The group said Messier “failed in his duty to shareholders” by not disclosing the sale of more than 200,000 shares in December 2001. Messier has denied any wrongdoing.

During his tumultuous months atop Vivendi, Messier was criticized for racking up huge debts and leaving investors puzzled over his strategy to transform the once-staid water utility into the world’s second-largest media company.

After Messier’s ouster last summer, Fourtou promised to articulate a clear path for Vivendi’s future. But he, too, has left investors scratching their heads.

Last year, for example, Fourtou downplayed speculation he was looking to bow out of Hollywood, saying Vivendi would remain mainly a media conglomerate. Since then, however, the company has seemed more intent on becoming a French telecom business, spending $4 billion to gain a controlling stake in phone-service provider Cegetel.

More recently, many on Wall Street were stunned by a report in The Times disclosing that Apple Computer Inc. has been in talks with Vivendi about buying all or part of its Universal Music Group, home to such stars as Eminem and U2.

“They said to us early in the year that music was not going to be sold,” Nathanson said. “They’ve been very coy about their strategy.”

Andrew Rittenberry, an analyst affiliated with New York-based Gabelli Asset Management, which owns approximately 6 million Vivendi shares, said of Fourtou: “People want more guidance on what he’s thinking and a little more information on what he’s going to do next.”

Fourtou and Vivendi declined to comment.

Fourtou, whose flamboyant predecessor often would telegraph deals before they would happen, has been vague about his plans. Those close to him say that this is partly out of concern that tipping his hand would affect negotiations. Fourtou’s agenda also has been complicated by a weak economy and slowed by a messy legal dispute with former Vivendi Universal Entertainment Chairman Barry Diller, who holds a number of restrictions on the sale of the U.S. entertainment assets.

Whatever the reasons, the slow pace has exasperated prospective bidders for Universal’s entertainment assets, most notably Liberty Media and oil tycoon Marvin Davis.

Others, however, are sympathetic to Fourtou and his team.

“These guys came in to a total disaster,” said Andrew Wallach, a managing member of New York-based Cumberland Associates, which owns 650,000 shares of Vivendi. “They stopped the bleeding.”

In the coming weeks, a variety of interested suitors are expected to pore over Universal’s books in the first stage of a bidding process that could well determine Vivendi’s future shape. Besides Davis and Liberty, others interested in pieces of Universal include Viacom Inc., General Electric Co.’s NBC and Metro-Goldwyn-Mayer Inc.

Time is of the essence. Analysts say Fourtou will have to sell at least some of the entertainment empire to meet his goal of raising $7 billion this year and avoiding another cash crisis in 2004, when Vivendi has a $2.5-billion loan due.

“Everything’s on the table right now,” analyst Rittenberry said.