Vivendi Posts $12-Billion Loss

French media conglomerate Vivendi Universal on Wednesday revealed a $12-billion loss for the first half of the year and said it would sell its prized U.S. publishing house Houghton Mifflin and other assets to help stem a deepening cash crisis.

Vivendi’s new chief executive, Jean-Rene Fourtou, acknowledged that the company “is facing a liquidity problem,” but said he had reached a tentative agreement for a $2.9-billion loan from French banks by the end of this month. He also vowed to raise $9.8 billion from asset sales in the next two years to lower Vivendi’s sizable debt.

But his assurances did little to calm investors. Vivendi’s stock fell 26% on the Paris market to their lowest level since June 1994. And credit-rating firm Standard & Poor’s lowered Vivendi’s debt to “junk” status. Moody’s Investors Service also downgraded Vivendi and said that if the company fails to get a bank loan in the next few weeks, “that would lead to a severe short-term liquidity problem.”

The credit downgrades will substantially raise borrowing costs for Vivendi and may complicate the company’s efforts to avoid a fire sale of other assets, analysts say.

Vivendi’s statements startled financial analysts and Houghton Mifflin employees who had been told by Fourtou in an e-mail just two weeks ago that Houghton was not for sale. “The flip-flop on Houghton indicates that their cash position is more desperate than we thought,” said Michael Nathanson, an analyst with Sanford C. Bernstein. “It’s not a pretty picture.”

Vivendi bought the Boston-based publisher last year for $2.2 billion, one of a slew of acquisitions by Fourtou’s predecessor, Jean-Marie Messier. In the last two years, Messier turned a water utility into the world’s second-largest media company by buying Universal Studios, French pay-television firm Canal Plus and the entertainment assets of Barry Diller’s USA Networks Inc. But the purchases left Vivendi with $34 billion in debt.

Fourtou, a veteran pharmaceutical executive, replaced Messier last month after he was ousted in a boardroom coup.

Executives at Universal Studios say they have been largely kept in the dark about how Fourtou’s restructuring plans will affect them. But studio executives say Vivendi eventually will sell or, more likely, spin off its entertainment assets.

However, that won’t happen any time soon because of the sagging stock market and because there are no obvious suitors for Vivendi’s U.S. entertainment assets, say Universal sources and analysts. Those assets include the Universal movie studio, theme parks and the USA and Sci-Fi cable TV channels.

“For Houghton Mifflin, there are a lot of buyers. We’re harder to sell and expensive,” a studio source said. Analysts estimate that Universal Studios alone could be worth about $20 billion.

The mostly likely scenario has been that Vivendi would spin off its U.S. entertainment assets to the public as a separate entity to be run by media mogul Diller and controlled by Vivendi’s current shareholders.

Diller, who runs Vivendi Universal Entertainment, the umbrella unit for the movie, television and theme park group, seems well-positioned to assume management control of the entertainment assets. In December, Vivendi paid Diller $10.3 billion for the TV and film properties of USA Networks.

The easiest assets to unload might be Universal’s theme parks in Hollywood, Orlando, Fla., and Osaka, Japan, which could fetch $400 million to $1 billion, analysts said. But analysts say weak forecasts for theme park attendance is likely to damp interest among possible suitors, such as Walt Disney Co. and Viacom Inc.

There also has been speculation that Vivendi Universal may try to reduce its debts by selling off Universal Music Group, home to such stars as Eminem and Mariah Carey. But sources at Universal, the world’s leading record company, say there is no such plan in the immediate future.

Even if Vivendi put Universal Music on the auction block, those sources say, there is no likely buyer because Wall Street has soured on the music business because of rampant music piracy and soaring costs in the industry.

Instead, music executives and analysts predict that Fourtou will wait at least a year before considering a sale, hoping that market will improve for the industry overall.

“Unless it’s a fire-sale price, there’s no incentive for anyone to risk their already stretched balance sheet to buy any of these assets,” said Paul Kim, a media analyst with Kaufman Bros.

Houghton Mifflin, the fourth-biggest U.S. publishing house, is among several businesses that Fourtou plans to sell to raise cash. “We have numerous potential buyers,” he said. Buyers could include Random House, which is owned by German media group Bertelsmann, and French publishing company Lagardere, analysts said.

“Certainly, this comes as a surprise,” said Houghton Mifflin spokesman Collin Earnst. “We believed it wasn’t the intent of Vivendi to sell us.”

A Vivendi spokeswoman said Fourtou changed course because of changing circumstances in the last two weeks, declining to elaborate.

To help meet his $9.8-billion target, Vivendi also plans this year to sell off nonprofitable portions of Canal Plus and to float a minority stake in the remaining French pay-TV company. Vivendi also is considering selling its 44% stake in French telecom company Cegetel, analysts said.

On Wednesday, Vivendi said its first-half loss was mostly due to a $10.8-billion write-down to reflect a steep depreciation in the value of its media assets. Excluding the write-down and other charges, Vivendi’s loss was $65 million.

Vivendi’s results were hurt by rising interest costs and the poor performance of Canal Plus and Vivendi’s Internet division.

But Vivendi Universal Entertainment had a strong first half, with its operating income increasing 36% to $519 million. Strong box-office results from movies such as “Scorpion King” and “A Beautiful Mind” helped offset a 7% decline in revenue from Universal’s theme parks in Hollywood and Orlando.

Universal Music’s operating income fell 28% to $166 million.

Vivendi shares fell $3.67, or 24%, to $11.66 on the New York Stock Exchange, a 52-week low. They have fallen 78% this year.

Since he took over, Fourtou has been replacing executives close to Messier. On Wednesday, he announced that Jean-Bernard Levy would replace Eric Licoys as Vivendi’s chief operating officer.

Times staff writers Corie Brown, Claudia Eller, Meg James and Chuck Philips contributed to this report.